The best way to borrow money

Borrowing money is easier now than it has ever been. It’s both good and bad news; good news that if you desperately have to borrow money, it may be readily available (depending on your circumstances) and bad news because it is all too easy to get into serious debt if you don’t know what you are doing.

The one thing you must do if you do have to borrow money is to go to a legitimate source. By that, we mean that you should approach known banks or loan companies that have a good reputation.

What about friends and family?

You can of course always borrow money from friends or family. Generally, this is probably easier than approaching a financial institution because you don’t have to worry about their qualifying criteria. But there are plenty of other drawbacks with borrowing or indeed lending money through people you know and/or love, and you need to consider these carefully before proceeding.

As a rule of thumb, it is best to avoid borrowing or lending money via friends and family unless of course, the lending party is not overly concerned about retrieving the cash.

Unsecured loans vs secured loans

Financial establishments usually offer two types of loans – secured and unsecured. A secured loan is something that is provided in return for some type of collateral. This means that some type of product with an appropriate financial value is offered should the borrower default with loan repayments; in which case, all or part of the “collateral” can be redeemed in order to pay -off the loan.

Unsecured loans (those offered without any security or collateral) generally cost more in terms of interest, than secured loans. A lot of people do not have security they can offer up, so they find their options somewhat limited when it comes to finding a borrower to lend them money.

The case for expanding the availability of unsecured loans

The good news, however, is that Dr Roelof Botha of the Gordon Institute of Business Science (GIBS) from the University of Pretoria, has made an argument for expanding the availability of unsecured lending in South Africa, maintaining that this would benefit SA’s poorer economy in the long term.

The good doctor says that the justification for opening up access to unsecured loans lies in several factors and that if granted, it would provide the wherewithal for many people to capitalise home improvements or perhaps enable them to start their own businesses.

According to Dr Botha, SA households have handled debt very well when viewed alongside debt as a proportion of total national income. The percentage has come down from 87.8% in early 2008 to just 73.2% in early 2017 – a very significant reduction.

Responsible borrowing

Borrowing money is an essential for most South Africans at some time in their lives. Most bona-fide financial institutions recommend what they term as responsible lending and borrowing. It’s all about ensuring that the party borrowing the money can afford to pay it back and this is something that should be equally important to both borrower and lender alike.