On the Internet, many inquiries have been made on how to get a personal loan in Kenya from both established and upcoming lenders. Many people are petrified by the term “personal loan.” Personal loans are a difficult proposition for some, while they are just out of reach for others. The terrible reality is that not everyone is eligible for a personal loan.
Your credit score, salary, and other financial factors influence your ability to obtain one. Even if you match the eligibility conditions, you may still have to jump through several hoops to receive the funds.
There are no straightforward answers to how to secure a personal loan in Kenya. Each lender has distinct loan approval standards and will consider your unique financial status when assessing eligibility and interest rate. But let’s take a step back from the doom and gloom to see whether we can answer some questions before checking out.
We are going to discuss in detail how to get a personal loan in Kenya. Since there is no standard process or guideline that applies to all lenders, we are just going to use an example of a leading loan provider in Kenya, and in this case Mwananchi Credit.
What Is A Personal Loan?
A personal loan is a form of loan that people can use to address short-term or long-term financial demands. Personal loans are available in both secured and unsecured forms. They can be used for a variety of things, including debt consolidation, debt refinancing, home repairs, medical costs, and so on.
Personal loans are not available from all lenders, but those usually provide consumers with a variety of lending conditions and repayment alternatives. Personal loans are often structured with a fixed interest rate for a specified period. Once you’ve paid off your loan in full, you’re free to walk away from it, however, it’s pretty uncommon for lenders to provide you the option to extend the loan if you so desire.
When To Take A Personal Loan
Personal loans are a legitimate source of finance that can be used for a variety of purposes. You are not restricted in how you spend the money with certain personal loans, which can be useful or negative depending on how you look at it.
Despite this, there are some excellent reasons and some negative reasons to take out a personal loan. Taking out a personal loan for the wrong reasons can have serious financial ramifications, so proceed with caution.
Personal loans are an excellent option for the following reasons:
- A personal loan allows you to invest in your personal development. You may use the funds to pay for an online course to improve your skills or to start a business, for example.
- You may use your loan to purchase an appreciating item. To make a profit, you might take up a loan and buy a piece of land.
- Personal loans can also help you meet the costs of a medical emergency by providing you with the funds you require. It can be used to pay for medical expenditures for you or a loved one in the event of a medical emergency.
- You can obtain a lower-interest loan and use it to pay off your present loan in order to eliminate your debt. Because of the lower interest rates, you’ll be able to get out of debt faster.
Some of the incorrect reasons for taking out a personal loan are as follows:
- If your spending exceeds your income, taking out a personal loan to offset your expenses is usually not a wise choice because you will find yourself in debt.
- If you find yourself taking out monthly loans to cover your usual bills, this is a bad idea.
- Taking out a loan to buy something you can’t afford is a bad decision unless the purchase will result in greater income for you in some way.
- Taking out a loan to purchase something you cannot afford will not only burden you with debt, but it will also significantly increase the price of what you are purchasing due to interest.
- Borrowing money for a vacation is likewise a terrible idea. If you don’t have enough money for a trip, you should either save up or alter your destination to one where you can afford it. If you take out a personal loan to pay for a vacation, you will be saddled with debt for something that isn’t an absolute requirement.
Types Of Personal Loans
In Kenya, personal loans are classified into two types: unsecured and secured.
Personal Loans Without Collateral
As long as you have a steady source of income, you can get a substantial sum of money with an unsecured personal loan. In the event of nonpayment, you utilize an asset as collateral to secure the loan with a banking or lending organization.
An unsecured personal loan is one in which you get money based on your income. Because lending institutions consider these loans to be more risky, they are frequently priced higher.
Unsecured personal loans include the following:
Short Term Loans
These are unsecured personal loans with extremely short repayment terms, typically ranging from 1 to 60 days. These loans are ideal for addressing unexpected expenses while you wait for your next payment.
Short-term unsecured loans are generally easy to obtain, do not require extensive documentation, and have quick approval times (be aware that app-based loan providers may scrape personal data from your device in lieu of official paper proof). The trade-off is that they only provide access to little sums of money while charging exorbitant interest rates and late fees.
Loans for Salary Advances
This is an unsecured personal loan that allows you to access your paycheck or a portion of it prior to payday. You must have a salary account with the lending organization to be eligible for a salary advance loan. Salary advance loans are typically approved quickly and have low-interest rates.
Salary Checkoff loans
Salary checkoff loans are loans whose payback is deducted straight from the client’s monthly salary. When the due day arrives, this repayment is made automatically. It is thus easier to implement and administer.
It is supplied in this situation to employees whose employers have a partnership with the lending company, for instance, Mwananchi credit ltd offers this kind of agreement.
Secured Personal Loans
A secured loan is one in which you pledge collateral, such as a house or a car, as payment to the lender if you fail to repay the debt. Secured loans are based on a simple principle. Lenders encourage borrowers to repay secured loans on schedule by accepting collateral as collateral. It’s a powerful incentive to return the debt and avoid repossession or foreclosure, especially if you’ve lost your home or automobile.
Secured personal loans include;
Logbook loans
These are personal loans that are collateralized by your car. When you take out a logbook loan, you keep your car while repaying the debt, but the lending institution keeps your logbook, hence the name.
If you default on your loan, the lending company has the power to seize your vehicle and sell it to offset your loan sum.
Asset Finance
These are personal loans that, like title deed loans, allow you to borrow against your assets. In this instance, the lending institution retains ownership of your assets until you repay the loan. Buildings, land, and equipment are examples of assets that can be used as security for asset loans.
Read List Of Top Logbook Loan Providers In Kenya
Considerations Before Taking Up A Personal Loan
Obtaining a loan that does not meet your financial requirements can have a negative impact on your money. For example, you could receive a loan with extremely high-interest rates, making repayment impossible. It is therefore vital to be well-informed before taking out a personal loan and analyzing the various options in order to make the best decision.
Here are some things to think about before taking out a personal loan:
Eligibility
Mwananchi Credit does not lend money to everybody that walks through their doors. We have several criteria that we utilize to decide whether or not you are eligible for a loan.
Before beginning the loan application process, you should check and ensure that you match our minimal loan qualification standards. Personal loan qualifying conditions include the following:
Income verification: They will ask you to supply documents proving that you have a consistent source of income and that you fulfill their minimal monthly income standards. Having a consistent source of income allows us to decide whether we can repay the loan. In most circumstances, if you are employed, you will be requested to show a pay stub or bank statement if you are self-employed.
Collateral: If you are seeking a secured loan, you must have an asset that can be used as collateral against the loan.
We will also require you to furnish a clean credit record from a Credit Reference Bureau demonstrating that you do not currently have a non-performing loan.
Relationship with the lender: In other circumstances, loan eligibility is also based on the amount of time you have had an account with them. If you did not previously have an account with the lender, you are barred from applying.
Interest Rates and Other Fees
Before you apply for a loan, you should know how much it will cost you. It is critical to understand the interest rate on a loan, as well as the total amount of interest, any additional fees, and the payback conditions. Interest rates differ depending on the type of loan.
The interest rates for secured loans are lower than those on unsecured loans. Unsecured loans may come with additional fees in addition to credit report and application fees. You should be aware that timely loan repayment is crucial to keeping interest rates low and avoiding default.
Product Specifications
This refers to the specific lending facility that you are contemplating. Consider the following points:
Minimum and maximum amounts: These are the minimum and maximum amounts of money that you can borrow using this loan option. Before obtaining the loan, ensure that the amount you are eligible for is sufficient to satisfy the needs that prompted you to seek the loan.
Minimum and maximum tenure: This is the period of time you have to repay the loan. It should be noted, however, that lengthier repayment periods are not always preferable. While a longer payback time results in lower installments, it also results in a greater cumulative interest amount.
Application approval time: The time it takes the lender to process and approve your loan application. Mwananchi Credit, for example, offers lending facilities with speedier approval times. However, the reason you are seeking the loan will ultimately determine this.
Repayment Information
The repayment details take into account the lender’s payment obligations as well as alternative solutions that may make repayment easier for you. Here are some things to consider:
Repayment frequency: How frequently should you make payments? While most personal loans need monthly payments, others require weekly payments, and others allow you to make a lump sum payment at any moment during the loan’s term. You should also evaluate whether there are any consequences for missing an installment.
What happens if you pay off the loan before the agreed-upon repayment period? Some lenders will give you a discount if you pay off your loan early, while others may charge you an early payment penalty because they would lose interest.
Repayment alternatives: What choices does the lender provide for making loan payments? Will they deduct the monthly installment from your account automatically each month? Do they accept M-pesa as a payment method? Can the payment be made via check? In this case, you should choose a lender who offers a payment method that is convenient for you.
The Potential Risks of Taking Up A Personal Loan
Inability to Make Payments
Everyone who takes out a loan has a plan for how they will repay the loan. Unfortunately, things do not always go as planned.
Failure to make your payments might have serious consequences for you. You could be reported to the Credit Reference Bureau (CRB), sued, and, in the case of a secured personal loan, you could lose your assets, such as a house, a car, or a plot of land.
Getting In The Way Of Other Priorities
Using a personal loan may limit your other financial goals, such as saving for a down payment on a house or saving for retirement because a portion of your income will be required to pay back the loan.
Increase Your Debt-to-Income Ratio
Taking out a personal loan increases your debt-to-income ratio, which is the percentage of your income that goes toward debt service. A high debt-to-income ratio reduces your ability to borrow when you need it in the future.
Conclusion: How To Get A Personal Loan In Kenya
This is s simple guide about how to get a personal loan in Kenya. In case you would like more information about a particular lender, you can visit their specific website or office and get more information. However, most if not all information about acquiring a personal loan in Kenya is contained in this article.
