We have up to 5 types of loans you can apply for in Kenya. You can use borrowed money for different purposes, which must fall in alignment with our needs. This is the best time for us to answer questions like, “What are the types of loans?, which is the best? And what purposes match the different types of loans?”.
Therefore, the need to start a business, solve a personal pressing need, and buy a home or a property, there are loans made for these varieties of needs.
Furthermore, each type of loan solves a peculiar problem, and hence, none is the best when it is being matched with our different needs. This article will reveal the types of loans we have in Kenya and all you need to know.
What you need to know about the types of loans in Kenya
For whatever you may be needing funds for, try to find out the type of loan suitable for your needs. However, if it is your first loan, ask around and do your findings. You can not need a business loan and go for a personal loan, which often attracts a relatively high interest rate.
5 types of loans you can apply for in Kenya
The different loans we have in Kenya are:
- Personal loans
- Secured loans
- Unsecured loans
- Fixed-rate loans
- Variable-rate loans
1. Personal loans
Personal loans are one of the 5 types of loans you can apply for in Kenya. This is a type of loan used in solving personal pressing needs. Personal loans can clear household bills, buy foodstuffs, pay off church dues, etc. A personal loan permits you to borrow cash from a lender for almost any personal purpose, mostly with a fixed duration, a fixed interest rate, and a regular monthly repayment. No collateral is required and banks, online lenders, and street lenders offer this type of loan. It is for those who need a relatively small amount of money.
2. Unsecured loans:
They offer this type of personal loan without collateral and approve it based on your credit score. The pros of this kind of loan are that there is no collateral involved. The disadvantage is a slight increase in interest rates. If a borrower defaults on a personal loan, it leaves the lender with few options but to involve agents or debt collectors. These people help in recovering bad debts. However, Lenders do not have the right to take your assets, land, etc as collateral. You promise to repay and show proof of solid income and excellent credit history.
3. Secured loans
Secured loans are obtained with collateral. Because it has recovered some part of the loan risk if the interest goes down. The advantage is a partially low interest rate and losing collateral in the case of loan default. Where your credit scores aren’t excellent enough to qualify for your unsecured loan, they request collateral. Secured loans show a lower risk rate to the lender or bank.
4. Fixed-rate loans
Fixed-rate loans are one of the 5 types of loans you can apply for in Kenya. In this type of loan, the interest and the monthly repayment remain the same till you pay off the entire amount. A fixed-rate loan is a type of personal loan where the interest rate stays unchanged for the entire duration or for a part of the loan period. Most citizens of Kenya go for fixed-rate loans for long-term loans. To an extent, they have a clear view of the future costs and monthly repayments.
5. Variable-rate loans:
The interest rate of this type of loan can go down or up depending on the marketing structure. A variable-rate loan is a type of loan or personal loan where the interest alone changes according to changes in market structure It is in most cases called an “adjustable” or a “floating” rate.
Note: Unsecured loans, Secured loans, Fixed-rate loans, and Variable-rate loans are seen as types of personal loans in Kenya.
Examples of loans you can apply for in Kenya
- Business loans
- Home loans
- SME and agricultural loans
- Home equity logbook loans
- Car loans
- Student and education loans
- Salary advance
1. Business loans:
Business loans are offered to entrepreneurs and startups. They also offer it to business people who will go into expansion. It comes with an average low-interest rate. It is mainly offered by banks because it often requires huge capital.
A business loan is a loan specifically for business purposes. Such loans come as asset-based loans, invoice financing, micro-loans, and business cash advances.
2. Home loan:
They offer home loans to customers who want to purchase a home. The borrower in most cases goes to find a home and then meets the financial institution for the loan. The financial institution takes the title of the home till the borrower makes the final payment. It comprises an adjustable or fixed interest rate and repayment duration. They mortgage the home in question to the lender, mostly banks as a security till the final loan repayment.
3. SME and Agricultural loans:
SME loans are offered to small and medium enterprise individuals who are looking to start up a business to boost the economy. They offer it on the basis that you pay little or no interest depending on the platform. Agricultural loans are for farmers and Agribusinesses to further turn their crude way of farming to a mechanized way in order to boost the agricultural sector. They in return make a repayment by the due date.
4. Home equity logbook loans:
This type of loan requires the borrower to submit all documents of his home to the bank to raise a loan. The loan might be 50% monetary value of the home. Landlords benefit a lot from this type of loan especially when they want to embark on a new project. Projects like education loans, re-roofing, property acquisition, etc. Moreover, the amount of the loan will be based on the value of the property.
5. Car loans:
This is a loan given to borrowers for them to own their dream car. There are terms and conditions you need to fulfill before you can get this type of loan. Often 80% to 90% of the value of the car is financed by the bank or the lender with an interest rate attached. It requires the borrower to pay back the loan and possess full ownership of the car.
6. Students and education loans:
There was a certain time when education was expensive, but the acquisition of loans has come to subsidize it. Lenders offer student loans to students or parents to finance their education. In return, the students graduate, get a job, and start paying off their loans.
In addition, they use student loans to clear tuition fees, books, and supplies, living expenses, etc.
7. Salary advance:
A salary advance is a type or form of a loan to salary earners who need cash and in return payoff at the end of the month. Monthly earners who need loans and can not wait till month end, go to acquire salary advance.
They give it to employees who receive wages or salary every month. It is simply a loan to an employee, and they pay it back immediately after the salary enters the account.
How to apply for any of the types of loans
Applying for loans in Kenya is generally the same procedure as all lenders. Except for slight differences. The procedures are:
- Download the loan app on the Play Store or visit the lender’s website and fill out the application form. Or visit the lender or the bank’s physical office and fill out your application form
- Create an account on the loan app and submit all your personal details.
- Wait for the app to read your details. Here you are to also submit your documents if requested.
- Wait for loan approval and have your loan.
General eligibility for different types of loans
To be eligible for a particular type of loan you need to be:
- Be 18 years and above
- Have a national ID
- Possess an active phone number
Conclusion
In the past few years, digital loans have changed the market for credit in Kenya. We have up to 5 types of loans you can apply for in Kenya. What should be of great concern to you is to identify the type of loan you need.
However, It is pertinent to do proper findings and comparisons and also know the type of loans your loan falls under. When you want to take out a loan for an emergency or business expansion, know the type of loan you would go for. Know the requirements and eligibility attached to each type of loan because in Kenya each type of loan has its own peculiar features.