How to Determine Whether You Should Take a Loan
Oct 18, 2013
Loan sharks, mama mbogas, banks and telecommunication companies are reaping huge rewards from the disconcerting habits of borrowing in Kenya. A nation deep in debt – that is one phrase that can be used to characterize these habits. You don’t have credit – just tap in some numbers and some credit will be transferred to you. You don’t have money for buying vegetables – don’t worry the mama mboga would be happy to let you pay at the end of the month. You can’t pay your rent – that’s what loan sharks are there for. It is so easy to borrow but often when it comes to borrowing small amounts of money, Kenyans rarely count the cost. So what things should you consider before asking for a loan?
How much interest rate would you be required to pay at the end of your loan period? If you are asked to pay an interest rate of 10-15 percent, this may not seem much when you are in a desperate situation. For example, ten percent interest on shillings one thousand is shillings one hundred. If you receive a salary of 5000 thousand and you borrow 1000 each month, this translates to shs1200 interest by the end of the year, practically over one-fifth of your monthly salary!
This generally applies to banks and telecommunications companies. When you borrow a loan, there are those hidden charges like service charges. For example, if you ask for a shs10 credit for your phone you pay a service charge of one shilling every time you borrow some credit. Again, this may not seem much, but if you keep in mind that you are given just several days to repay the loan, then you may begin to see the bigger picture.
Penalties for defaulting
Every now and then something happens that gets in the middle of loan repayment. When this happens the lenders take measures to get their money back. Loan sharks resort to taking your property. Telecommunications companies put additional interest on your loans and some even shut down your account. Banks continue to put additional charges on your loan and may auction of your property. More often than not, what is taken from you is worth more than the loan itself in terms of cash and sentimental value.
Can it be avoided?
Some Kenyans borrow money for credit simply because they are too lazy to go to the shops. They figure they can always repay it when they happen to go shopping next. This is despite the fact that there are many kiosks that sell credit right in the estates. Poor planning is also another reason people end up taking loans. They would rather spend their money on wants rather than taking care of their needs first. For example, instead of repaying loans owned to shop owners, Kenyans can arrange to make payments beforehand for their food stuffs. This way, the shop owners would just deduct from the money already paid.
Count the cost
It is best to develop a culture of counting the cost before taking loans to avoid future heartaches. Learning how to budget would remove the need of taking many loans and it will also enable you to save some money. A vital tip is putting money aside for the rainy days as they are called. Do not take loans simply because it is convenient. Learn to count the cost and borrow wisely.