CREDIT IS HERE
One of the fall outs of the banking consolidation is that banks are awash with cash, and suddenly, banks have come to the realization that there is something called consumer credit.
Some years back, you needed to get the endorsement of your employer, landlord, local government chairman, township association and grandmother to be able to secure a car loan from a bank. Now banks are more than willing to give loans for anything under the sun, from owambe, school fees, home furnishing, and even shares! Very few banks will offer you a loan to buy shares.
Suddenly, everyone is "shine shine bobo". Flats are humming with generators, sitting rooms lit with wide screen plasma TV, laptops and personal digital assistants (PDA) has now become a fashion accessory and compounds are adorned with "tear rubber" automobiles of different makes. The way the automobile sector is heading, one begins to feel that second hand car dealers will soon become fringe players in a market they once dominated.
Sellers of consumer good have never had it so good. Consumer spending fuelled by other people's money. Very soon, car dealers will soon join the fray. Soon, you may not need you bank to get a car loan. Financially sound car dealers will turn banks, and finance your purchase. Pay zero to 2o percent down, and off you zoom to the envy of your colleagues and neighbors. Since you do not need to save up to pay for it cash, you can now afford what you could only dream about some years ago.
Someone that could only afford 1995 model Honda Accord can now go for a spanking new "tear rubber" Rav4. Buy and now enjoy now, use future earnings to pay.
Credit, rightly used can be your best friend, and wrongly used, your worst enemy.
Using credit to buy liabilities, especially the depreciating variety is not common sense. Nobody said sense was common.
Imagine your dream lean mean driving machine, latest model Toyota Camry. The designers of that car should be sent to jail for designing temptation on wheels, especially the black model. Well that is my opinion. Cars should not be that sleek. It leads one into temptation.
Imagine you have a good job, and then decide you are due for change of car (as a matter of fact, you are the only one among your colleagues that has not "torn rubber", so you figure it is about time), so here you are at a car dealer's. Since the car you drive away with does not depend on cash at hand, you can jolly well afford to point out your dream car. The dealer is willing to let you have it. You work for a bank or oil company for crying out loud.
The moment you pull that car out of the parking lot, that car has lost 25% value instantly, before you log one kilometer. If you change your mind before the gateman opens the gate for you to leave, and decide you are not buying again, you have a high grade tokunbo in your hands (have you noticed that most tokunbo car dealers now have latest model automobiles in their car lots?)
You have lost 25% instantly, and in the world of accounting, you lose 25% every year thereafter. After four years, the car has a zero book value. It will still be on the road, no doubt, but you will become quite close to your mechanic, and he will know you to your house, and sometimes your village.
So you have a situation where you are paying for something that is losing value before your very eyes (or "very before")
Imagine you used that N4M loan to buy Dangote Sugar Refinery Stock? I am sure you get the picture. It will be worth more that N12M now, you sell one third of your stock to raise N4M to buy your dream machine, another one third or so to pay off your loan and you still have some cool millions sweating it out for you in the market, giving birth (adding value, not depreciating) through bonuses and dividends.
A tale of two colleagues, wont you say?
Both cruised on credit boulevard. One got richer, the other poorer.
This does not mean that every stock in the stock market will pull the same stunt Dangote Sugar did. In each case, especially when other peoples money aka credit is involved, you have to do due diligence before you jump.
Credit is like a two-edged sword. It can make a way for you, and it can inflict deep cuts on you, depending on how you wield it.
You can hardly go wrong when you vote for assets, when credit is involved. Shine your eye well well.
Connect With Us
 |
 |
 |
 |
