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As the search for more creative and better ways to facilitate loan application continues to rise, both lenders and borrowers continue to practice secured loans. This means an increased willingness of lenders to give out loans by receiving collateral. 

Though in Kenya lending standards appear to be sophisticated, borrowers still protect their risk exposure by providing an asset. The asset turns to belong to the lender if the borrower cannot repay the loan amount. So it is important that borrowers should be open-minded and probing about what they may pledge as collateral. If the earning power is enhanced and improved on, the lender continues to look more favourable to the borrower.

Let us study secured loans in Kenya and everything you need to know.

What is a secured loan

A secured loan is a loan given to individuals who have deposited or provided any form of security. Examples of such securities are title deeds, logbook, share certificates, etc. They are acquired with specific collateral as requested by the lender considering the loan amount. A logbook loan is one of the highest types of loan applied for in Kenya by the citizens. 

Understanding secured loans

Secured loans can come as a business or personal loan in Kenya. The lender allows you to borrow by providing a collateral or security. Most times the collateral for secured loans are assets for money.

If you default on the loan, the lender sells off the asset or seizes the collateral. So with a mortgage loan for an instance, until you make the full payment, the home is not yours yet. Once you cannot pay, the bank takes possession of the asset.

How a secured loan works

In Kenya secured loans allow you to borrow and then submit collateral. Once you repay the loan, you take back your collateral. But if you cannot pay back the loan, the lender owns the property.

You can find these loans from many lenders like the bank, credit union, and online lenders. Most lenders offer these loans as mortgages and car loans. However, there are still other ways you can secure a loan using your equipment.

Finally, they require a little credit check depending on the lender. The lender determines your interest rates based on the amount you are applying for and the repayment duration. Interest rates for this type of loan are low when compared with unsecured loans. It is so because the risk of the loan is reduced by using an asset to secure the loan.

Rates and fees

The rates and fees associated with secured loans in Kenya are:

1. Interest rates
2. Negotiation fee
3. Annual renewal fee
4. Documentation and security fee
5. Valuation fee

Standard requirements

The basic requirements for any secured loan are the same everywhere in Kenya except some little difference. The requirements are:

1. Kenya national ID card
2. Passport 
3. Must have an account with the financial institution. Some lenders might also prefer you have an M-Pesa account
4. Employment card
5. The last 3 months’ pay slips
6. Evidence of income and consistent cash flow for self employed.
7. Valuation report for motor vehicle loans

Benefits

The benefits are many. To dive deep into the matter, it is one of the easier loans to apply for. You do not need to worry about your credit score and the lender, too, worries less. Alternatively, once you present the collateral, they reduce the risk of the loan. Once the borrower cannot pay back the loan, the lender sells it off to recuperate the fund. The benefits include:

1. The lender is relaxed and has an alternative way of recovering the money once the borrower cannot pay back the money.
2. It has a competitive and low-interest rate.
3. It has a longer repayment duration.
4. The borrower also enjoys in such a way that many lenders remove other associated fees once they request security.

Examples of secured loans

Secured loans can come in different forms and used for different purposes. So if you are borrowing funds for business or for personal usage, your security option can come in the form:

1. Bad credit loans
2. Mortgage loans
3. Car logbook loans
4. Vehicle loans
5. Shylocks loans
6. Equipment loans

Where to find secured loans

In Kenya, searching for where to get secured loans is just not far-fetched. You can collect secured loans from different financial institutions like:

1. Banks
2. Online lenders
3. Credit unions

What can you use as a collateral for secured loans

Kenya is a country that has a larger financial market. And they offer several types of loans with collateral while some are not. Collateral as an asset is pledged in exchange for a fund. The lender takes possession of the asset till the borrower pays off the loan. Collateral most lenders want are items that can easily be converted into cash. The items include:

1. Houses
2. Bonds
3. Cars
4. Stock
5. Jewelry
6. Antique furniture
7. machines

These assets represent a revenue stream for the lender once the borrower cannot repay the loan.

What to consider when looking at secured loans

Secured loans are risky in the sense that you lose everything once you cannot pay back the loan. It is also risky to the lender when the collateral cannot be easily liquidated. When comparing and considering secured loans, there are tips to keep in mind. They are:

1. The type of collateral or security required for the secured loan
2. The interest rate associated with the secured loan
3. Check if the secured loan interest rate is fixed or variable
4. Look out for other fees and hidden charges
5. Ask for the minimum and maximum loan amount
6. Consider also the credit score
7. Be sure to assimilate the whole requirements.

Conclusion 

With a secured business or personal loan, be rest assured that you repay with a low-interest rate. Be sure to check the requirements. While they continue to ask for collateral, be capable of paying back the loan, you do not want to be taken by surprise. And with a secured loan, checking your credit score is not taken too seriously by some lenders. Note that, it is helpful to ask and compare lenders before you take a step.

The system of investment is changing and the way we borrow money is coming to live on our palms. We can get money from other individuals other than banks and financial institutions.

However, when you do not want to borrow money from the bank, peer-to-peer lending Kenya is an option worth seeking.

Can you picture yourself in Kenya and see the emerging market filled with individuals who are ready to offer financial help. So the emergence of peer-to-peer lending opened a new opportunity for investors willing to offer more financial help. Individuals make a profit by coming together and joining a fund, then lending it out.

Let us discuss everything you need to know about peer-to-peer lending in Kenya.

What Is Peer-to-Peer Lending?

Peer-to-peer lending is a platform that enables individuals to get loans directly from lenders other than formal financial institutions. It is a social or crowd funding that connects lenders and borrowers. Most of the loans on this platform are unsecured personal loans. With its unique characteristics with other formal financial institutions, they consider it as an alternative to financing.

Understanding Peer-to-Peer Lending

Peer-to-peer lending binds borrowers and investors who will lend out some part of their money. First the investors open an account and fund it and then disperse it as loans. It is usually done in cash with little formal documentation. 

However, it is limited to a close network of people in the lender’s group. They also give loans to outsiders. A third party can handle the loan application and disbursement and shares a portion of the profit with the lender. Lenders or investors on this platform include people who are ready and willing to assure a portion of the loan.

How Peer-to-Peer lending evolved

Traditionally, lending in Kenya has been informal. Peer-to-peer lending started with no documentation and in cash and with a close number of people in the same group. Earlier on, the peer-to-peer lending system started by offering loans to people who were spurned by formal financial institutions in Kenya.

Often lending on this platform is a way to generate interest in cash at a rate that exceeds those offered by the banks. Lenders then are allowed to start with a little money and as time goes on, they can decide to contribute more and loan out more. 

How Does Peer-to-Peer Lending Work?

Peer-to-peer lending involves processes and steps which include:

1. You fill and submit an online application. This entails you fill in a credit inquiry which can either be soft or hard.

2. The lender may assign you a risk category. Here, your score or rating will affect the principal amount, terms and interest rate. If you settle for the loan limit, you can move forward with the application. 

3. Investors review your loan request and requirements. State why you need the loan and how you can pay back. Your reasons have full chances of convincing the lender. Depending on the structure of that peer-to-peer lender, they might reject your loan application.

4. Loan acceptance. If the investor states other criteria that you are suitable with, you can accept the terms and the loan amount. Some lenders would transfer the loan amount to your bank account within days.

5. You make monthly repayments. Peer-to-peer lenders report all individuals who cannot pay back their loans. CRBs keep the record and you retrieve it any time. Late payments may also come with late fees that increase the total amount of repayment. 

Advantages

Peer-to-peer lending provides some significant advantages to both borrowers and lenders. Both have various ways they benefit from the platform. Advantages of peer-to-peer lending includes:

1. Higher returns to the investors or higher profit maximization: Peer-to-peer lending provides returns or profit to investors through charging of interest rates. Late fees and other fees paid by the borrower are also part of the returns. g
2. More alternative and accessible source of funding: For some borrowers, peer-to-peer lending is a better option. They are not ready to go through the stress of the formal banking system. Some borrowers also with low credit scores see it as an alternative.
3. Lower interest rates: Peer-to-peer lending interest rate is often low and affordable because of the greater competition of financial institutions in Kenya.

Disadvantages  

Peer-to-peer lending comes with a few disadvantages and which includes:

• Credit risk: Peer-to-peer loans have much default probability because of the risk taken by lenders to give loans to borrowers with low credit scores.
• Lack of insurance/government protection and policy: The government does not provide any form of policy to govern the platform. No form of insurance or protection to the lenders in case of the borrower’s default.
• Legislation: Some jurisdictions are limited and do not allow some borrowers to borrow and some lenders to give out loans. It is required you conform to the regulations and when you do not; it affects the platform and the borrowers.

Some Peer-to-Peer Lenders in Kenya

Some of the peer-to-peer lenders in Kenya are:

• Kiva
• Zidisha
• Pezesha 
• UbaPesa 

The P2P lending platform in Kenya is still new with their continuous zeal in  connecting borrowers to lenders. 

They all use different models to give customers access to loans and have different interest rates and repayment terms. Before applying, ensure you compare different P2P lenders and read their terms.

Types of Loans Available Through Peer-to-Peer Lending

Peer-to-peer lending serves as an unsecured personal loan. It can be used for the same purposes as personal loans. Few loan types you may find on peer-to-peer lending websites are:

• Personal Loans
• Mortgage Loans
• Car Loans
• Student Loans
• Medical Loans
• Business Loans

The investing side of Peer-to-Peer lending

Becoming a Peer-to-peer is a gigantic business for investors and the investing side to this platform are:

1. Peer-to-peer lending helps investors earn extra income.
2. Through the platform, you can learn how to track your earnings from principal to interest and as your borrowers make their payments. You will also learn how to cash out or reinvest.
3. There is risk involved in the platform
4. There’s also a tendency of the lending platform itself shutting down. When borrowers don’t turn as suppose, you might lose a portion of the profit or investment.

Is Peer-to-Peer lending the right fit?

Peer-to-peer lending may be a better option for those who cannot qualify with banks and other lenders. Despite the sophisticated Fintech setup, people with fair credit can also apply and have it help them. 

For those who would wish to explore alternative financing sources, peer-to-peer lending might be right for them.

Special Considerations

People who are considering joining a peer-to-peer lending platform should:

1. Need to note about default rates, as do banks and other financial institutions. 
2. Any consumer or investor considering using a peer-to-peer lending platform should check the fees on transactions. Fees like origination, transaction and processing fees.
3. Know that each platform works differently but as unique features which includes credit score rating and interest rates.

Conclusion

Peer-to-peer lending platforms connect borrowers directly to investors or lenders. The platform decides the rates, terms and conditions and also approves all transactions. The lenders are individual investors or consumers who want to get a return on their cash savings. Finally, borrowers who seek alternatives to banks can patronize peer-to-peer lenders and still smile home.

People generally take loans when they fall short of money to fund their immediate expenses. On the other hand, for a lender, not that simple. The lender actually considers several factors while evaluating the eligibility of a personal loan applicant before sanctioning a loan.

Rejection and disqualification occur when applicants fall short of certain criteria or requirements. This article contains brief enlightenment on a few steps to avoid loan rejection 

Here are the 5 reasons the financial credit provider of your choice may reject your loan :

Mistakes in the loan application

Banks do not consider loan applications with mistakes or errors. In fact, some banks will get the application verified through third-party agencies.

This to ensure that there is no misrepresentation or deliberate hiding of facts. How to apply for a loan might vary depending on the company. So be sure to do research before getting on with it. 

Taking multiple loans

People have a habit of looking for multiple loans when they don’t get the desired loan amount from one lender. They also do this when they have already taken a loan and want more money to meet certain expenses. 

Now, if you take multiple loans, it could mean over-leverage and risk of falling into a debt trap. This can be disastrous for your future financial security as well as it may affect your credit score.

Not enquiring directly about the loan with lenders

Loan applicants should avoid direct loan and credit card enquiries with lenders as credit bureaus consider such enquiries as hard enquiries. Instead, loan applicants should visit the online financial marketplace to compare various personal loans offerings and select the best one.

Making too many Job switches

Having a steady means of income can go a long way in boosting your chances in getting a loan. Lenders love to work with financially stable individuals. This way they are sure of your repayment capability. 

For sanctioning a bigger amount of loan, lenders also consider the time period of your present employment. Thus, you should avoid frequent job switches during your career, as it may have a negative impression on the lenders.

Not comparing and choosing the product that best suits your needs and means.

This is an important key-point to note. Banks and other financial bodies will decline your loan application if they feel you’ll not be able to make repayments.Instead, personal loan applicants should visit the online financial marketplace to compare various personal loans offerings and select the best one. 

Conclusion

If they deny your application, don’t despair. Remember, most loans are met with a hard no. Take positives from the experience by learning from your errors and submitting an even stronger application the next time around.

This approach ensures progress. Keep it up and you’ll eventually get the finance you or your business requires.

A loan application being rejected can be frustrating. Therefore, it is important to understand the criteria before applying. Successes of loans are not just that easy without meeting a few requirements.

Standing on a friendly note, you need to know that things have tightened up in the financial market since the percentage of loan defaulters continues to grow. And lenders are looking at loan applications more closely. Financial institutions consider many factors before deciding whether to approve your loan. Once you know what they look out for, you can boost your chances of getting approved. 

Be aware that every lender is different. That’s why you should know what different lenders are looking for, so you can put your best foot forward. Ultimately, you will need to be honest with your lender if you want to get approved for a loan. Misleading your lender or hiding relevant information won’t make your situation any better.

5 Common Reasons Your Loan Application May be Rejected

There are a lot of mistakes loan applicants make that can lead to the rejection of their loan applications. Some of them are:

1. Amount of debts and poor credit history:

Besides checking how much a loan applicant makes per year, most lenders also check the total amount of debt as well. They do so in order to decide if the applicant can repay the loan. For salary loan, there could be minimum salary requirements or maximum total debt requirements. Poor credit history can cause your loan to be rejected. Not having an excellent record with CRBs because of accumulation of debt may make a lender reject your loan application. 

2. Error in loan application:

There are plenty of eligible applications that will get rejected simply because there is an error in their application. Some important details are missing or are incomplete. When the required information and documents required are not complete, then the application is rejected.

3. Job Instability and income to repay the loan: 

Employment status and stability is another key player in why some applications boasting excellent credit scores are rejected. Having a stable job means you have stable income, which gives lenders a greater level of comfort that you have the ability to pay back the loan.

4. When your business has no evidence of cash flow:

Many Lenders feel less comfortable giving loans to young businesses without a track record, such as evidence of cash flow.

5. Inadequate form of Collateral: 

Many small business loans are secured by offering something of value to reduce the risk of the loan. Such valued items include cars, houses, etc. Inability of the loan applicant to provide a collateral might cause his/her loan application to be rejected.

Basic things Lenders Look at Before Approving Your Loan

There are basic things lenders look at before approving your loan, and they are:

1. First, they look at your credit history
2. Source of income for repayment and employment history 
3. Type of loan you want and your requirements and eligibility

Factors to Look at to Avoid Loan Rejection

Factors to look at to avoid loan rejections are:

1. Your credit history 
2. Check whether you are eligible first
3. Consider also if you meet up with requirements of such loan
4. Know and decide the type of loan you want. Some would want a personal loan and while filing the application form, they fill a business loan.
5. Know the repayment duration
6. Have a steady source of income so you will be able to pay back the loan.

Frequently Asked Questions

Why am I getting denied for every loan?

The main factor making your personal loan applications get denied are bad credit history, high debt income ratios and unstable income.

What happens if you get rejected for loan?

If your loan application is denied, the lender will tell you the reasons but it won’t appear on your credit score. A declined loan won’t impact your scores also.

Conclusion

Prior to applying for a loan, the lender should be considered. It is important you carry out a proper research on the loan platform. If you are having issues applying, halt your application for the time being. Take actions and be ready to improve your finances before you apply again. 

Technically, some loan applications require not much effort and stress. The basic thing is knowing all it takes to apply. As one of them is clearing up a negative figure on your credit report. Others, like building an excellent credit report, will require  much time and need patience.

But ultimately, you must succeed and these approaches will make you a better loan candidate. And this increases your chances of getting approved in the future.