At some point in life almost everyone, from the least paid persons to the highest paid individuals in a country need a loan to take care of some important matter. Sometimes such loans are for groceries , education, medical care, recreation, vacation, funeral expense, home construction, vehicles, investment, or many other things.
Loans can be grouped into two broad categories: secured and unsecured loans. With secured loans, the lender holds collateral for the borrower that he can sell to recover the full cost of the loan, if there is a default on the payment. In the absence of collateral, loans are also considered secured when they are granted with employers’ guarantee of full payment, through pay sheet deduction for employees of the business.
Funds lent with neither the holding of collateral, nor pay sheet deduction are considered unsecured loans. Recovery of the cost of such loans depends on the good conscience of the borrower, or lengthy and costly litigation. The risk of loss with secured loans is very minimal or next to nil; however, the risk of terrible loss with unsecured loans is huge. For that reason, the rates of interest for unsecured loans are high, while the rates of interest for secured loans are much lower.
Loans in Belize are obtained from pawnshops, payday loan companies, banks, credit unions, and government owned lending institutions such as The National Bank of Belize (NBB) or the Development Finance Corporation (DFC). Private banks in Belize include the Belize Bank, Atlantic Bank and Heritage Bank.
Pawnshops, and payday loan companies provide microfinance mainly to the working class. Their loans mature in a month with a normal maximum limit of $5.000.00 for a single loan. Pawnshops, payday loans companies, banks, credit unions, and government lending institutions are all strictly regulated by the Central Bank of Belize (CBB). They are therefore all legitimate businesses.
The Central Bank sets the maximum interest rate for each of those lending institutions as well of scores of monthly requirements for their operation. The CBB also has the authority to suspend or revoke the license any of those lending institutions for non-compliance with its strict regulations. The CBB, however, doesn’t regulate the financial market in favor of any individual business in any of the categories of financial institutions it supervises.
Pawnshops offer secured short-term loans that last for a month. They hold jewelry as well as nonelectrical and nonperishable items as collateral for loans and are allowed to charge a maximum of 15 percent interest monthly. The companies that offer payday loans charge 20 percent interest per month, regardless of whether their loans are secured with pay sheet deductions or not. With years of experience in the business, many of those companies that offer unsecured loans have devised ways to make sure they collect as much of their money as possible on payday.
The banks, credit unions, and G.O.B. lending agencies offer secured long-term loans for a year or longer, mainly to the middle and upper class. That is achieved by holding adequate land, buildings, vehicles, or costly equipment as collateral for any loan, or through mandatory pay sheet deduction for employees of the public service and other businesses. Because of the low risk of loss with secured loans, the interest rates of those large lending institutions range from 7% to 15% interest per annum. The various financial institutions in Belize can take hard pay borrowers to court to recover funds that were lent to them. Persons who default on payments for loans from pawnshops lose their jewelry and other valuable items that sometimes cost more than $10,000. Individuals who default in repaying unsecured payday loans are taken to court and, if necessary, eventually to the Hattieville Prison until they have paid their outstanding debts in full.
Banks and credit unions offer loans at promotional rates in the Christmas season when many people are in need of extra cash. These loans range from $3,000. to $15,000. at interest rates ranging from 7.75% to 11% per anum.
Persons who default on long-term loans with banks, credit unions, and government lending institutions lose their lands, homes, businesses, vehicles, and expensive equipment regardless of how few payments they had remaining after almost paying off a long-term loan for at times as much as 30 years. Often such lost amount to millions of dollars for the borrowers. When taking out a loan from whomever and for whatever reason, it is always good advice to study the loan market in the community first. The difference in interest rate per month or per year could determine whether loses his or her property due to default on the loan payments, or whether someone is better off after paying off a loan.