What Is A Tanda Money: Understanding its Purpose, Mechanics, and Impact
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Defining about What Is A Tanda Money
Well here are the definition of what is a Tanda in 2024, AÂ Tanda is a rotating savings and credit association (ROSCA) that was established by a circle of acquaintances with the intention of lending money to one another to assist them save for a bigger objective, such a substantial purchase or interest free loan. The group meets on a regular basis to add a certain amount of money to a pool that is then divided among the members.
The Concept of Tanda Money
- A Tanda is a group of friends’ or family’s rotating savings and credit association.
- The group gets together frequently to deposit money into a pool, which is eventually distributed to one of the members.
- Tandas provides early adopters with a loan that has no interest.
- Tandas are another tool that people who find it difficult to save money might use to make themselves put some aside.
- Tandas are known by several different names worldwide and are more prevalent in underdeveloped nations.
Definition and Example
The word originates from Mexico, where about one third of the people participate in money pooling organizations. For a group of people that know each other really well, it’s a ROSCA. Most typically, tanda members are friends or family who can rely on one another to consistently contribute their portion of the funds, even after they have received their individual rewards.
As an example, 10 friends and family members may each agree to put in $100 a month for 10 months. Each member of the tanda would get $1,000 in one of those months.
ROSCAs are more common in developing countries or among immigrant groups in more developed countries.
The Concept of Tanda Money and How it Operate?
The members decide on a collective budget, a frequency of contributions, and a duration of those contributions. They can elect to pick a member at random to get the money in a particular week, or they can arrange in advance which members will be paid in what order.
An early cycle recipient of funds can use a tanda as a short-term, interest free loan. It’s a method for those who get payouts in the midst of the cycle to budget and set money aside for a big purchase. It creates societal pressure for people who are nearing the conclusion of the cycle to continue saving money.
Because tandas aren’t subject to government regulation and in most cases are set up by an informal agreement, you don’t have much recourse if you don’t get your full expected payout
Substitutes
You can use certain common banking tools to construct a payout structure if you want to save money and benefit from some of the characteristics of a tanda but don’t have access to one or don’t think it’s right for you. One way to do this would be to open a bank savings account and have automatic transfers made into it every payday. Some banks pay 1% or more in interest yearly, especially those that are only available online.
While opening a savings account at many banks doesn’t need a minimum balance, you might need to reach a particular amount to enjoy better benefits like the best interest rate.
Online money circles, also known as pooling services, gained popularity in the early 2010s thanks to the now-defunct EMoneyPool. These services function similarly to tandas, but with additional security measures that are typical of online trade.Yahoo had an app called “tanda,” which only lasted a few months, but others such as Money Fellows and crowd funding forums had more staying power.
At its most basic, an online money circle or money pool charges a small fee in exchange for the assurance that the service will cover your payout in the event that one of the participants in your pool defaults on payments. Each money circle or money pool may operate slightly differently.
For instance, 6% is the rate that MoneyFellows charges for a five month circle slot. Depending on your engagement level and where you are in the payout plan, the charge decreases over time. You will pay the lowest cost if you can wait until the conclusion of the payout schedule.
Benefits and Drawbacks
- Pros
Social benefit in helping friends and family
Missed payments are rare
Many online options with extra safeguards
- Cons
Risk that you won’t be paid
May cause loss of trust among friends or family
Online versions come with fees
Advantages of a Tanda
Benefiting friends and family socially: The social aspect of a tanda is one of its main benefits. Meeting with their tanda group once a week or once a month helps many people realize that their already strong relationships are strengthened. A tanda can be a useful tool for friends and family to assist a loved one in need or for people to borrow money from someone they trust without paying interest or other costs.
Payments missed are uncommon: It is extremely uncommon for anyone to miss a payment under practically all tandas. This is due to the fact that breaking a promise can have a significant social cost. Carlos Velez Ibáñez, a professor at Arizona State University, discovered that the nonpayment rate was 0.005% after studying 130 ROSCAs.
Additional precautions are provided by online options: Online money circles are a method to join money-pooling groups with more safeguards than tandas, if you are concerned about the absence of a payout guarantee.
Cons Described
Danger of not getting paid: Because tandas are founded on social contracts rather than regulations, there is no legal repercussion if group members fail to make their payments.
May lead to a loss of confidence in friends or family: Whether or not you trust the people in a tanda and how you handle these interpersonal interactions may be the most important considerations when joining. It could be a good idea to start modest if you have never attended a tanda before or if you are joining one with a new group of people who aren’t close friends or family. You run the danger of upsetting the people you care about if you are unable to make the required payments on time.
Online versions include costs: You will probably have to pay for an online money circle or tanda, at least initially, if you would rather have the security of one.
Editorial disclaimer:
Opinions expressed here are the author’s alone, not those of any bank, credit card issuer, airline or hotel chain, and have not been reviewed, approved or otherwise endorsed by any of these entities.
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