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Financial Borrowers Dark Pit - Traps Borrowers Should Avoid on the Wake of Economic Recovery

Written By ipink edy on Sunday, July 28, 2013 | 12:56 AM


With the prospects of economic recovery in the year 2010 after a recession, consumer were awaiting the period with zeal. It was likely that due to the preceding harsh times they had undergone, some were thirst to borrow personal loans. Unemployment and reduced business turnovers had led to clients being barred from acquiring loans. Many clients would be tempted to rush for loans but this could be untimely and detrimental to their financial stability especially in the first stage of the recovery. There are a number of factors that borrowers needed to have in mind. These range from over borrowing, multiple borrowing, slow recoveries, competing financial companies, unstable loan rates among others.

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Over borrowing

Due to the economic tension, clients had stopped their projects and would want to revive them as soon as the economy improved. As the clients moved to acquire personal loans, they may have been tempted to borrow much than they could cope up with in repaying. The growth was expected to be slow and incomes would remain constrained for some months before a noticeable effect could be felt by borrowers. The multiplier effect was expected to take time before it showed itself to the individual incomes and business returns. Therefore, borrowers were advised to obtain sizeable loans that they could conveniently pay back.

Multiple borrowing

Taking numerous loans in the beginning of recovery is unhealthy. The recovery was young and weak and hence the stability of the financial clients. Acquiring many loans would put the borrowers in monthly financial constraints and this could result to loan delinquencies and possible collateral loss. This would put pressure on the little income being earned and the clients would be in dire stress as this could lead to inability to repay the loans prompting collateral auctions.

Competing financial institutions

Financial companies were expected to compete for clients as a 'pool' of borrowers turned in large numbers to acquire loans. Loan borrowers were anticiapted to remain focused and work out loan programs before engaging in any loan acquisition. No matter how the companies offered sweet loan deals, consumers were advised to remain keen and only borrow when it was necessary. As lending institutions rushed to offer low interest rates in order to attract customers, the implication was an impulse borrowing from unwise decisions

Unstable interest rates

The early stages of recovery experienced unstable economic growth with fluctuations on major economic parameters such as dollar rates, import and export prices, and stock exchange indices among others. Bank rates remained unstable. Over borrowing and multiple borrowing was accompanies by increased loan interest rates due to untimely change on the economic recovery resulting to fluctuations in dollar currency to low values against other major currencies. This would place the loan clients to be pushed to financial 'shackles'.

Slow recovery process

The recovery was characterized by slow growth and its effect could not be felt immediately. Changes in commodity prices took long to adjust. Likewise, business volume took a lot of time to improve. It took more than six months for any significant change to be felt. Financial borrowers were cautious as any early and massive borrowing would put them into crossroads and the effect would be severe financial constraints.

Prospective loan borrowers were required to remain composed as the recovery would attract increased household spending and at the same time entice more consumers to engage in loan acquisition. If these financial traps were observed they could save the borrowers from difficult circumstances they could find themselves in. Abstaining from untimely and undisciplined personal loans borrowing and cash overexpenditures at the beginning of the economic come back would be a commendable practice.


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