YOU MIGHT WANT TO READ THIS BEFORE YOU TAKE THAT LOAN FROM THE BANK. (KNOW P.I.T.I BEFORE SOMEONE PITIES YOU)

There are times when things are overwhelming and times may be hard. We all go through rainy days at some point in our Lives.

Or sometimes we go to the bank to get a loan because we have that business Idea and nobody believes in it except you of course the Convener

But you might want to pay attention before you apply for that loan or that mortgage else…

Heard of P.I.T.I?

I’m guessing you said No, So I’ll explain.

P- PRINCIPAL
I – INTEREST
T- TAX
I- INSURANCE

The money you want to get from the bank is what is known as the “Principal” let’s say the amount you want to borrow from the bank is $100,000 and you really need this money so desparately from the Bank.

The Bank checks your credit worthiness,
✓Have you been a Creditor before,
✓Borrowed from any financial institution,
✓The profitability of your business (most times they will demand a business proposal and Business Plan),
✓And your source of income (this is why most civil servants find it easy to get loans)

And let’s say you finally pass all these tests and you have been found to be credit worthy then the next step is to find a suitable time frame that would be convenient for you to pay back, this is where the “interest” comes in. Now the longer the time frame, the smaller the interest, the smaller the time frame, The higher the interest.

The Bank is a business enterprise and they make money from the money you give to them to help you save, (Not saying it’s bad but this is one of the reasons why I don’t enjoy saving my money in Banks)

*******Please don’t ask me where I save my money*******

The interest is the accrued profit that the Bank hopes to make from the loan they gave to you. Because it is after all “people’s money”

So let’s say it’s 11.5%(I’m using the latest monetary policy rate as at today)

That means the Bank is entitled to getting $11,500 but that’s not all

Next thing is the “Tax” most times some businesses do turn out successful but business owners evade tax and this in turn makes the government to come after them confiscating the assets of most tax evaders and this might affect the money the bank gave to you and the Bank wouldn’t want that now, Would they?

So they prefer to pay the tax themselves or sorry they prefer to make you pay the tax to them so that they can pay it for you. That way they are sure you (They) are safe because the payment receipts are with them

Then we go to the Insurance, now the Bank wants to be sure that even if you are unable to pay the loan, they are still safe (Murphy’s law)

Sometimes this is called “Collateral”
Something that they can hold on to just incase 😉

Or the bank might insure the loan for you through other means like the NDIC (Nigeria Deposit Insurance Corporation) and other organisations like that

So you might end up paying almost 25%

That is Principal + Interest + Tax + Insurance (You do the maths)

So you have to make sure that whatever business you are taking that loan for can yield a profit huge enough to cater for your P.I.T.I

But I also looked around and found other means how you could get the money (If in case you checked and couldn’t borrow the money)

✓Family and Friends
✓Corporate Societies
✓Micro Finance Banks
✓ Grants from the government and NGOs
✓Pitching to Investors (I’ll talk about this later)

Hope you found this valuable?

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