Before You Go for that Bank Salary Advance Account, Read This

Post-recapitalisation, banks have had a lot more liquidity and are getting more creative in finding business outlets for the application of funds they hold. Consumer financing has been one option, and we all know how much easier it has become to get a car purchase or household equipment acquistion financed for you. Lately, salary advance packages have become an important product. Oceanic, Bank PHB, etc, have products targeted at the "ever-broke" worker. The offer to the working class is to hold a salary account with the bank and have the discretion to easily overdraw your acount to a specified limit. Put differently, the worker is offered an opportunity to spend his next pay(s) in advance. In effect, you can use more money than you have already earned, except that you need to pay back with future earnings.

Having a fallback bank facility, especially if cost-free to retain (it would seem Oceanic PASS has an annual fee of N5,000), is a good cushion against the often unexpected financial challenges of life. Before a financial need throws you into a traumatizing crises, it’s good to know you can easily get help.

Just a Fallback
The advice is for you to retain such account relationship more for this “insurance” objective. Let it be handy if, by any chance, a genuine priority and urgent need arises. That simply reduces this to a standby facility: it’s there, perhaps forgotten, but to come to the rescue if a pressing need arises.

The Danger
The risk many people run with the easy salary advance accounts is to quickly turn the borrowing margin into part of their regular income. In effect, there could be the tendency to remain perpetually overdrawn at the bank, with the next pay credit coming in just to wipe the overdrawn position. That means a quick return to more overdrawn position to tide through to the next payday.

Two problems easily arise in that scenario:

• Prolonged overdrawn positions will cost you dearly as interest rates in our market are still sky-high. The fun of having ready money at the flip of your fingers may easily turn into an albatross to drag you into penury. When your account congeals into a permanent overdrawn balance, you may soon find that your earnings simply service your borrowing. This may well be an extreme position, but we know that it’s not everybody that can exercise personal financial control.
• Your ability to spend more than you currently have, while helpful in certain exceptional circumstances, is certainly a trap that can cage you in poverty. Nobody gets rich by spending more than they earn or even all that they earn. So, having an easy opportunity to do so is not too much of a blessing. Borrowing, if it ends up invested, may not be damaging, but the reality is that much of this will go into consumption. Besides, it’s not structured for investment and so may not be ideal for that purpose. Easy spending loan, if you understand, could prove a booby trap.

It’s About Financial Wisdom
The idea in this write-up is not to fault these products which could be helpful when well-applied. Given, however, that we seek the financial growth and success of our community, we feel obliged to harp on the risks they could pose, especially to those who may approach them with gullibility. Easy consumer borrowing could ease your financial pain, but more often, it leads to more financial woes as there is the tendency to abuse the opportunity. So, before you go in, it’s good to define your purpose. It’s also important to exercise the discipline to carefully apply the facility only when the conditions that justify its use are clearly present. If that doesn’t happen, you may bring more long-term poverty on yourself. That shouldn’t be.

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