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:
- Interest rates
- Negotiation fee
- Annual renewal fee
- Documentation and security fee
- Valuation fee
The basic requirements for any secured loan are the same everywhere in Kenya except some little difference. The requirements are:
- Kenya national ID card
- Must have an account with the financial institution. Some lenders might also prefer you have an M-Pesa account
- Employment card
- The last 3 months’ pay slips
- Evidence of income and consistent cash flow for self employed.
- Valuation report for motor vehicle loans
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:
- The lender is relaxed and has an alternative way of recovering the money once the borrower cannot pay back the money.
- It has a competitive and low-interest rate.
- It has a longer repayment duration.
- 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:
- Bad credit loans
- Mortgage loans
- Car logbook loans
- Vehicle loans
- Shylocks loans
- 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:
- Online lenders
- 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:
- Antique furniture
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:
- The type of collateral or security required for the secured loan
- The interest rate associated with the secured loan
- Check if the secured loan interest rate is fixed or variable
- Look out for other fees and hidden charges
- Ask for the minimum and maximum loan amount
- Consider also the credit score
- Be sure to assimilate the whole requirements.
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.