Connect with us

General News

Kenya: Managing Your Sacco Loan Amidst Current Challenges

Published

6 years ago

on

[ad_1]

My Sacco has sent me an email about the loans we are currently servicing. It is a thoughtful email.

They have given us options about what we can do to lighten the monthly burden of repaying these loans. Because, you know, coronavirus, uncertain times etcetera etcetera.

They have put these four options on the table. I have broken each down to understand how it applies to you as a borrower, and what you should be aware of as you consider exercising it.

Remember, all these options are temporary measures in response to the current pandemic. We don’t know how long it will last or how much longer it will take before our financial circumstances settle.

For whichever option you exercise, ask your Sacco if you can still revert to normal loan terms – repayment period of 48 months, 12 per cent interest rate – once the cat has been belled. Also ask how it affects your monthly contributions and annual dividends.

Option #1: Repurchase your loan

What the Sacco is saying here is that, on top of your current loan, you can borrow more money on new terms.

That is, a similar interest rate but for a longer repayment period – you will have a bigger loan, more money at your disposal but you will repay less per month.

You will also service this bigger loan for a much longer period and you will end up paying much more on the interest.

Say you had been regularly servicing your loan prior to the pandemic, and now had Sh500,000 left. You exercise this option and borrow more money, say Sh300,000. Your new loan balance is now Sh800,000.

You now have extra money to sort out any other financial emergencies that may have – or will – come up. Say rent, car or medical insurance, illness, employee salaries and whatnot.

Option #2: Consolidate all your loans

Here, the Sacco is offering to buy all the loans you have with other financial institutions and consolidate them into one huge Sacco loan.

That is your bank loan, your loan with another Sacco, your mobile-lending app loan and, if you try your luck, your shylock loan.

Again, we will assume you had a loan balance of Sh500,000. Your other loans are totalling to Sh100,000, this is the extra you borrow from your Sacco.

They will use this money to buy off your all these other loans. They will also extend your repayment period to 60 months.

You now only have the Sacco to deal with. Another plus is that Saccos offer the lowest rate of interest in the market – exercising this option means you will have more money from your income going back into your pocket at every payday.