Factors to consider when taking a loan in Kenya

  

Date Posted: 11/1/2012 8:16:48 AM

Posted By: wameyo99  Membership Level: Silver  Total Points: 345

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You have finally decided to venture into business, or maybe decided to buy land and are now looking for a bank loan. What factors do you consider before taking that loan? Do you look at the interest rates? Do you look at the repayment period?
Taking a loan in Kenya has become quite easy nowadays, but don’t be in a rush to get a loan without considering some key factors that determine whether you repay more or less. So, What are these key factors that you should consider? Read on to find out.

1. Interest rates

At least most people do look at loan interest rates when they approach local banks for loans, but interest rates alone won’t tell you everything about the loan. When taking a loan, you should get to know how the interest rates are calculated. Interest rates are mainly calculated in two ways: reducing balance method and flat rate method. So, which is the best method among the two?

You will find that loans calculated on a flat rate method are often more expensive than the ones calculated on a reducing balance method because the flat rate method, the interest remains the same throughout the loan period while for reducing balance method, the interest reduces as the loan is paid off.

2. Repayment Period

You should know that the longer you repay a loan, the more you pay for that loan. This is mainly due to many factors that banks consider when calculating interest rates e.g. inflation and risk. Always try to repay your loan within the shortest time period to avoid paying more.

3. Hidden charges

Not every bank charge is stated on that loan repayment schedule or that loan application form, so please take your time to inquire more about any extra charges that may not have been mentioned

upfront. Most Kenyan banks have charges like insurance fees and application fees that you need to be aware of.

4. Can the loan contract be changed in case of a change in loan interest?

Will your loan interest change as a result of a change in the current interest rates, or will the rates remain the same? This is a key factor that you should know about before taking a loan with a bank. Sometime last year, the interest rates of loans rose to an all time high mainly because of inflation and many people who had loans were affected by this change. Some banks will extend your repayment period so as to cover up for the increase in interest rates while some banks won’t change anything for existing loans. Make a point of knowing this before you sign any loan form or you could end up paying more than you had bargained for!

4. Early Repayment Charges

Most banks will charge you a fee in case you want to repay your loan early before its expiration date. The charges vary from bank to bank and it would be wise to know how much you will be expected to pay just in case you want to offset your loan.
With the knowledge of these tips, I hope you will make an informed choice the next time you consider taking a loan in Kenya.

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