Borrowing money is not as sweet as receiving a grant, though it can enhance life on the island when upfront money is required. Since grant money is very difficult to obtain for anyone other than the poorest families, the only other options are to sell assets or obtain a loan when immediate cash is needed.
Loans can be useful when an emergency expense takes away the rent money. Perhaps a temporary drop in hours might otherwise lead to an eviction without an immediate cash infusion.
There are multiple options for borrowing money. Each has distinct pros and cons, with cost of financing being the biggest difference between them.
Co-operative financial institutions provide a nonprofit source of financial services. These credit unions generally offer the cheapest loan options. Their nonprofit status means that they do not have to charge an extra percentage to pay their investors. What does that mean for the client? Lower interest charges.
The members of the co-operative are the owners. Therefore, the best rates are generally featured in their loan products.
Membership can be restrictive. Some co-operatives limit membership to employees of specific companies. Others may relax requirements slightly to allow for a broader customer base. Assuming that a person is eligible for membership at a co-operative, these institutions will likely have the lowest interest rates available.
Banks are the primary loan option for the general public. These lenders are for-profit, and they charge higher rates of interest to pay investor profits.
The strongest loan applicants can usually demand a fairly low interest rate. Those with weak qualifications can expect to pay a higher rate of interest. Some applicants will be denied due to prior credit issues or income problems.
Local banks and international banks provide the capital necessary for funding purchases or simply coming up with emergency cash. Each has interest rates that change periodically, so it is best to compare the rates of several banks prior to committing to the terms of a loan.
The role of finance companies is to serve those who are left out by the banking sector. Finance company loans are more expensive, yet the eligibility requirements are somewhat relaxed. More people may qualify for these loans, but they can expect to pay for that convenience.
The finance companies in Barbados offer few options for most members of the general public. Little choice is available, making it difficult to search for a lower rate. Products include auto financing and unsecured personal loans.
This category of loan could be the most dangerous. It is the realm of the most desperate borrower.
More benign options include peer lending platforms which broker small loans between minor borrowers and entrepreneurial lenders. While rates can sometimes be high, it does represent a growing sector of alternative lending.
The more dangerous side of alternative lenders include payday lenders, cheque cashers and loan sharks. Selecting any product out of this category is unwise. Many of these products are illegal and unlicensed by the Central Bank of Barbados.
Whatever product is selected, every borrower must ensure that they will be able to repay the funds without fail. Otherwise additional fees and credit consequences could result.