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|#||Date||Interest (KShs.)||Principal (KShs.)||Balance (KShs.)||Total Interest||Total Payments|
This is the type of where the borrower pays interest on the remaining balance of the loan. So, as the borrower pays the loan, the interest amount reduces.
This is different from the flat interest type of loans where the borrower pays a flat interest on the total loan amount from start to end of the borrowing period.
In Kenya, most loans are reducing balance type loans, check the loan calculator that you are using to confirm that the formula takes this into account.
Historically, the interest rates on loans have been set by lenders (commercial banks and microfinances). The more risky borrowers were charged interest rates up to 30% per annum. Effective 14th September 2016, all interest rates charged on loans are capped at a maximum of 4% above the Central Bank Rate (CBR).
Yes, it is very possible and advisable to negotiate the interest rate that you are charged by the lending bank. You can reduce your interest rate by proving that you are in financial good standing, a strong report from Credit Reference Bureau, financial collateral. The less risky your borrower profile is, the lower the interest you will be charged. Using a loan calculator from different banks and financial institution can help you to understand the different offers available to you from the market.
If you find yourself in the situation that you are not able to keep up with your loan repayments, the first thing and most important thing is to make contact with your bank and have meeting with your relationship manager. Explain your circumstances, some banks offer their clientele financial advice and support during these situations.
It is also advisable to contact other banks and see if you can do a balance transfer. Another bank can take up your loan balance and give you some grace period before resuming your loan repayments.
These are loans that are issued through the client’s mobile phone, received in the mobile money balance.
Traditionally, these loans were charged at 5-15% interest per week but have now been capped to 4% above the CBR. Loan calculators may not be used to price the interest on these loans as they include a whole host of other charges and facilitation fees.
Note: Loans issued by microfinance institutions are not subject to the interest rates cap so they may be priced much higher than bank loans.