Many people put a lot of time and effort into applying for and securing loans. Then they receive an offer, hopefully a few; check the offer and loan documents thoroughly and sign up. After that they hold out the bucket for the money to drop into. Once that happen the vast majority forget about the loan, depending on permanent payment arrangements to attend to payments.
As long as it all goes well, it all goes well. If loan repayments are met on time all the time there is really no problem, but the borrower may well be flying blind. They may depend entirely on bank statements to reveal how the loan is going.
One thing the Royal Commission did show is that some of the most respected lenders sometimes cheat borrowers. If your aim is to make profits out of your loan or to gain an asset that will increase in value or contribute extra profits, it will be wise for you to maintain your own records of how the loan is reducing and compare that with bank statements. Carefully record the interest and charges that increase your debt and the repayments that reduce it. Then compare them to the bank statements when they arrive.
It is easy to set up a spread sheet with 5 columns – 1.date, 2.opening balance, 3.interest and charges, 4.repayments, 5.closing balance.
Each line down the page in the first column would be one month in the loan term column.
Columns 2+3-4=5.
One of the most important factors to understand is the balance outstanding at any one time.
If anything goes wrong with the loan or your relationship with the lender, it will be important for you to have a record of the life of the loan as well as the lender having it. The thug like debt collector who is charged with recovering a debt that is in default, is a very different person to the smiling lender who approved the loan application.
People in trouble with bank loans often come to my firm with a big debt problem but few records of what has transpired. Some do not even have a copy of their loan contract. When we sit down for serious negotiations with a lender, the lender will not readily produce documents that prove it did something wrong or even illegal. When the borrower has a good record it is much easier to pinpoint faults on the part of the lender.
This sort of record should take only about 15 minutes a month to maintain. If for any reason you decide to refinance elsewhere that record can easily demonstrate your ability to meet loan terms if you happen to not have bank statement to do so.
Your record may well provide you with a better indication of what the loan is actually costing you that can quickly be compared with your profits each month as compared to last year and budget.
A loan can be a good profit-spinner but it can also be a loss-maker so records are important. When I changed GBAC from a Chartered Accountancy practice to a debt solutions consultancy for businesses and farms, I saw how easy it was for borrowers to get into strife. Having run my own businesses and farms as well as consulting, I could understand the constant pressures under which business and farm owners operate. Businesses always face competition from other businesses along with government regulation whereas farmers have to contend with unpredictable weather & prices.
Keep good records and think often about your debt and how fast it is falling. If you need advice call a consultant.