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How much does my loan really cost in Kenya?

Taking out a loan can feel complicated — there are complex words and every service has different fees, terms and promises. One of the most important things to know how much you’re paying to borrow money, either through a loan or an overdraft service. 

All loans require that you pay something, but each loan service is different. It’s important to know what you’re expected to pay so that you can plan for your future. 

Some loans, like Tala, have a service fee, which is a fixed fee based on the original amount of the loan. With Tala, you know exactly how much you owe from the very beginning. 

Other loans have a cost sometimes called an access or maintenance fee. These fees can be charged daily, monthly or yearly.  This type of fee can add up very quickly becoming extremely expensive. When taking a loan with growing fees, it’s important to pay back the loan immediately because the longer you wait, the more you’ll pay.  

Let’s look at an example of both types of loans. 

Richard takes out two loans for 5,000 KSh. 

Loan A has a one time service fee of 5% for 30 days. 

His service fee would be 250KSh. He would owe 5,250 KSh total. 

Loan B has a one time service fee of 1%, plus a daily fee of 30 KSh. 

It takes Richard 30 days to repay Loan B. 
On the first day of his loan, Richard would owe: 

1% of 5,000 KSh = 50Ksh

  • Daily fee of 30 KSh 

= 80 KSh in fees for that day. He would owe 5,080KSh total 

On the second day of his loan, Richard would owe another 30 KSh, making his total 5,110 KSh. 

If Richard waits the 30 days to repay his loan, he would owe 950 KSh in fees, making his total repayment is 5,950 KSh. It would be like his interest rate was 19% 

Even though it looks like Loan B is cheaper at the beginning, look at what the long term fees will be. 

Remember to review your exact loan or overdraft terms to understand exactly how much you owe and when. 

Keep an eye out for hidden fees — you don’t want to be surprised! Remember that there might be a transaction fee to transfer money as well. Take that into account.

When considering using a loan, be intentional so you can plan for your future. It should not be a spontaneous decision, but rather a thoughtful process so you can plan when you can pay back your loan, with what allocated fees. With growing daily fees, it’s more difficult to make long-term financial decisions because you have to pay immediately (within a day or two), or your fees will continue to grow very quickly while your debt is outstanding. 

And remember to read your loan terms to make sure that you know exactly what is expected!

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