Common mistakes to avoid when borrowing..

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Senior Villager
When money has become scarce and
low in purchasing power, borrowing
has certainly become inevitable. A
recent Ipsos poll showed that one in
every four Kenyans has contemplated
suicide due to the rising cost of
living. A previous report shocked
many that 93 per cent of Kenyans
earn less than Sh40,000 while
almost half of them take home less
than Sh10,000.
These scenarios have not only
pushed Kenyans down the pit of
debt but also made them to diversify
reasons for borrowing from fulfilling
long-term goals to fixing short-term
emergencies or simply borrowing for
consumption or to pay off other
Borrowing from financial institutions
is the fastest way to access a larger
amount of money that you cannot
save over a period of time. Many
people also consider it more
personal in a society where asking
friends and relatives for money is
The market is also awash with
borrowing channels like mobile
money, credit cards and overdrafts.
However, the pit of debt is definitely
where you would not want to be
found. The truth, however, is that
those who have not contemplated
suicide are most probably dead by
financial suicide of bad debts.
Before becoming a debtor, consider
the following.
Costs of loan : When applying for a
loan, many people simply plan with
the amount they are applying for in
mind. The urgency to get cash makes
potential borrowers sign on the
dotted lines without knowing what
the net take home will be. Isabella,
a micro-loan officer, says that
borrowers simply say they want a
certain amount and ask for monthly
“They will be seen in the banking
hall after spending the loan to ask
about the charges and the interest
of the loan,” she says. Others have
no idea about the so-called hidden
The loan application process has
charges tagged on it. Other banks
may call it service charges or
appraisal fees but the truth is that
it ranges between three to nine per
cent of the total amount applied for.
Some banks deduct this amount in
advance while others load it on the
principal borrowed and the interest
in the repayment.
If you are applying for say Sh3
million, you may pay as much as
Sh270,000 in processing fees.
There are also insurance charges
against death and disability. “Banks
have to keep safe and avoid the
embarrassment of looking for
relatives when a loanee dies,”
explains Richard, a debt recovery
This fee is dependent on the period
of the loan since it applies yearly. It
is, however, charged at the
processing stage, further reducing
your take home or carefully loaded in
the repayment structure, but either
way, you pay. That is the bottom
In 2011 when inflation hit the
ceiling, many borrowers found their
loans rescheduled after interests
shot up. Many either did not
understand it or just did not care to
know why the repayment periods
had become longer.
Timing of the loan : While planning
to borrow, the purpose must guide
your timing. Loans in some
circumstances may not be instant
especially when collateral is used as
A title deed, for example, has many
legal processes for its joint
registration that may take between
three weeks to one or more months
to complete. Banks will only lend
after the land is cleared as clean
and safely registered under the
borrower’s and the bank’s na
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