Most Affordable Bank Loans in Kenya and How to Apply
Kenyans have in recent times become cozy with taking up mobile loans pushing banks to join the mobile platform to beat the competition.
The procedure of taking up a bank loan in Kenya is not complicated and is similar irrespective of the type of bank you approach.
There are three common types of loans in Kenya:
- Secured Loans
- Unsecured Loans
- Salary advance
There are a number of factors to consider when choosing which institution to take up a loan from other than the obvious one which is interest.
Banks and other financial institutions vary in strengths and the best to go for loans may not necessarily be the best to reach out for your asset financing. Unlike loans that are synonymous with most Kenyans asset financing which comes in form of a loan to enable you to purchase an asset that could, for example, be a vehicle, piece of land or an apartment.
A majority of Kenyans survive on a hand to mouth basis and whenever any other need arise loans is the only way to navigate through the financial need.
To apply for a loan in any Kenyan bank, you must meet the following criteria.
Secured Loan
- Must be an account holder with the Bank you are seeking a loan from for at least 90 days which is 3 months
- Original and copy of National Identity Card or a valid passport
- Employment card if employed
- Latest 3 Months original pay slips
- Provide proof of income if self-employed
Unsecured Loan
- Must be an account holder with the bank you are seeking a loan from for at least 90 days which is 3 months
- Original and copy of National Identity Card or a valid passport
- Employment card if applicable
- Latest 3 Months original pay slips
- Provide proof of income for self-employed individuals
Salary Advance
- Must be an account holder with the bank you are seeking a loan from for at least 3 months
- Original and copy of National Identity card or a valid passport
- Latest 3 Months original pay slips
To secure a loan with a Kenyan bank, it takes around one week while it could take a day or a few hours to secure a soft loan.
To secure an unsecured loan with a Kenyan bank, it takes around 3 days but could be sooner if it is an emergency loan.
Interest Rates on Loans per Bank
The Central Bank of Kenya (CBK) has continued to retain the benchmark lending rate at 9 percent meaning banks in the country can only give loans with a maximum interest rate of 13-14 percent.
The Banking Act caps lending rates at 4 percentage points above the CBK rate bringing down initial interest rates from what was initially viewed as exorbitant lending rates. Loans are no longer as expensive despite a number of banks not being so strict with the CBK cap rate. Below is a look Interest Rates on Personal Loans from a number of Kenyan Banks.
- Cooperative Bank – 13.5 percent
- Equity Bank – 13 percent
- KCB – 13.5 percent
- Barclays Bank – 14 percent
Banks considered to the best lenders also include Standard Chartered Bank, NIC Bank, CFC Stanbic and I&M bank.
The Kenya Bankers Association’s (KBA) credit report mid-2018 indicated that big banks, in terms of assets and customer base, offered borrowers the most expensive loans despite incurring the lowest cost of funds compared to the smaller banks.
The report termed loans from Barclays Bank of Kenya, Equity Group and NIC Bank as expensive with the highest total cost of credit, while banks like Victoria and Guaranty Trust Bank (GTB) whom little is known of were reported to be offering the cheapest loans.
The report was based on a tabulation of how much it would cost a borrower to repay a 1 million shilling unsecured loan over a period of 12 months. The data revealed that the higher costs arose from non-interest charges such as processing fees on the loans.
A loan of 1 million shilling from Barclays bank would cost one 135,245 shillings which would include 57,800 shillings which is the borrowing fee and is 42 percent of the total cost of credit.
Equity Bank would offer the same 1 million shillings loan for 132,445 shillings which would include 55,000 shillings of the non-interest borrower’s fee.
NIC would charge 121,445 shillings for the same one million shilling loan and include a non-interest borrower’s fee of 44,000 shillings.
Victoria Bank, which is the cheapest of the 32 lenders in the KBA 2018 database, a one million shilling loan would cost 77,445 shilling. Victoria charges no other fees on the loans other than interest prescribed by law.
The KBA data reflects lending tactics that the small banks use to create a larger clientele base. Kenyans should hence also consider what the small banks have to offer for more affordable loans.