Pauline Tonna from the MFSA’s Consumer Complaints Unit writes about affordable borrowing and why consumers should distinguish between needs and wants.
Until some time ago Maltese people were known for their thrift customs and the habit of savings was embedded into the national culture. Older generations were brought up with a mentality to save not only for emergencies but also for other major acquisitions like buying a house or car.
They also managed to stretch their monthly income to set aside something for their retirement. Going into debt was an option people tried to steer clear of and taking risks was surely not the order of the day.
Unfortunately, circumstances have changed and the world has turned into a materialistic playground. The habit of saving is slowly fading away and losing its importance in the value list of today’s generation. We have come to a point where the success of people is judged by what brand of clothes they wear, how many technological gadgets they possess and what type of car they own.
Many live day by day and spend what they earn without a single thought that tomorrow might not reserve such a colourful picture. Obviously, the social media and advertisements do not make it easy on society and coerce people into being no less than their peers.
We’ve come to an extent that when people do not afford to buy luxuries or maybe go on holiday out of their own pocket, they resort to their credit card or take out an overdraft facility to finance their spending.
What we sometimes forget to ask ourselves is: “Do we really afford to borrow?”
Loans and other advances can help you do many things like buying that house you always dreamt of, getting a new car or paying for essential household items. Getting into debt is, however, much easier than getting out of it.
The fees, charges and interest rates you have to pay when borrowing money can make credit very expensive, especially if you borrow more than you can afford.
The world has turned into a materialistic playground
Before borrowing money, you therefore have to weigh whether it is for something you really need or something you want. There might be other ways of getting what you want without having to borrow if the item you intend to purchase is not so expensive.
For example, you can save and then buy the item outright. Some companies nowadays also offer customers the option of paying for the product purchased in interest-free instalments. Or maybe it’s because you’re having trouble coping with the day-to-day expenses?
The budget calculator available on the Malta Financial Services Authority’s consumer portal – Mymoneybox – can help you keep track of your current spending and see whether you can cut back on certain expenses. You can also check if you can afford the monthly repayments before you decide to opt for a loan.
There are certain things the majority of us do not afford to buy without resorting to the bank for finance, for example when buying a house. While the bank expects you to share part of the burden by forking out an initial deposit (which normally is around 20 per cent of the total amount required to buy and finish the property), the bulk payment will be made by the bank.
Borrowing money to buy a house is certainly one of the most important decisions you can take and probably also the most expensive one. You therefore have to think thoroughly about any changes that might affect your income, which can ultimately impede your ability to make the stipulated repayments. If you are unsure about your job security or maybe you are planning to start a family or take time off to study or you have any health issues which may mean you will earn less for a while, then you might be better off saving now and borrowing later.
Before you commit yourself, make sure you are given a detailed information sheet which clearly lays out all the terms related to the loan for which you applied for.
Get quotes from different banks and compare their terms. Do not commit yourself until you have shopped around. You should not be charged for requesting a detailed information sheet which describes the terms of a loan which you may eventually apply for.
Keep in mind that, other than the interest rates, you are bound to pay fees and charges which have to be clearly explained before you formally accept to take up any offer.
Lastly, make sure you are dealing with an entity that is licensed to give you credit. Don’t be disheartened by the process and the paperwork. Special offers by banks on interest rates and other charges feature quite often, so don’t rush into taking the first ‘good’ offer that comes by.
More information about loans, and your rights and obligations as a consumer, are found on the authority’s consumer portal.
http://mymoneybox.mfsa.com.mt