Taking a loan in Kenya has been made easy in recent years, but don’t be in a rush to get a loan without carefully considering some major issues that determine whether you repay more or less.
Most people do put interest rates into consideration when they approach a lender, but interest loans alone will not tell you everything there is to know about a loan. You should also find out how the interest rates are calculated. For example, if they use the reducing balance method or the flat rate method.
Loans calculated on a flat rate method are more expensive than the ones calculated on a reducing balance method. This is because the flat rate method the interest remains throughout the loan repayment period while for the reducing balance method, the interest reduces as the loan is paid off.
You should be aware that the longer your repayment period is the more you pay for that loan. This is due to the factors the lenders take into consideration when calculating the interest rates, such as, risks and inflation. It is advisable to repay your loans within the shortest time period to avoid paying more.
Not every bank charge is clearly stated in your loan application form or the loan repayment schedule. Hence, take time and inquire if there are any extra charges such as, application fees and insurance fees as they may not have been mentioned upfront.
In case of a change in loan interest, can the loan contract be changed?
Get to know whether your loan interest will change in case of any current interest rates revisal. The interest rates can change due to inflation and you may be affected. Some lenders can extend the repayment period to cover for the increase in interest rate while others will not change anything for the existing loans. Hence, make a point of finding out all the information in regards to that before you sign any papers and end up paying more than you bargained for.
Early repayment charges
Most of lenders tend to charge a fee in case you want to repay your loan earlier than the expiration date. The charges vary from one lender to the next and it would be good if you inquired how much you are expected to pay just in case you want to offset your loan.
Armed with the above information, I can only hope that you will be able to make an informed decision if you are considering taking a loan in Kenya.