What you need to know:
- Lenders often hide unfavourable terms and conditions in fine print.
- Borrowers ignore the inconspicuous words, quite often to their detriment.
The small print that you ignore while applying for a loan can quickly turn out to be the most important part of your deal with a lender, often costing you dearly.
For many lenders, some of the terms and conditions that accompany their loan products — such as interest rates, hidden charges, deductions and penalties — are unfavourable and they prefer to hide them in fine print.
Borrowers, often eager to receive their loan, disregard the inconspicuous words and skip to where they need to sign for a transaction to be approved.
This is all too true for Esther Nyambura Mwangi, a charcoal seller, who is now ruing her costly decision to ignore the fine print in loan documents.
On November 5 last year, Ms Nyambura sought a loan from Progressive Credit Ltd to expand her business.
Title deed as collateral
But like many borrowers, she says she failed to read the fine print that had conditions that stipulated, among others, penalties for failing to pay a monthly instalment on time.
She received a Sh210,000 loan that she was supposed to pay back within 12 months in instalments of Sh30,100. This meant she would repay a total of Sh361,200, which is Sh151,200 more than the principal sum.
Confident in her ability to repay, she handed out the title deed to her 0.775-hectare piece of land valued at Sh700,000 as collateral. But as she would learn later, she had also signed away her house belongings, to be sold in case she failed to repay the loan.
She paid one instalment on time, but the effects of the Covid-19 pandemic hit her business hard and subsequent repayments were late. This is when her problems began.
“The people from the credit firm came looking for me and I explained myself, but I did start paying small amounts from my savings accounts,” Ms Nyambura recounts. Unbeknown to her, missing a scheduled monthly payment attracted a penalty of Sh10,500.
Interest and penalties
To the 42-year-old’s shock, Progressive Credit sent auctioneers to her home on February 16 to cart away her belongings. To add salt to injury, the auctioneer valued the products at throwaway prices — her TV set at Sh8,000, a cooker at Sh5,000, a sofa set at Sh7,500, a fridge at Sh9,500 and a dining set at Sh8,000.
This means auctioning them would recoup money only enough to cover one month’s instalment and penalties accrued for the month, and would leave her still vulnerable to losing her land if she defaulted on subsequent payments.
But she managed to pool some resources together and made several repayments, the last of which —Sh24,000 — was paid last week. But in between, the company slapped her with nine default charges of Sh10,500 each, totalling Sh94,500.
From a loan of Sh210,000, the company is now claiming Sh519,600 from her despite what she has already paid. If she doesn’t pay, she will lose both the money she has paid and her land, plus all her valuable household belongings.
But to prevent the situation from deteriorating further, Ms Nyambura asked her lawyer to petition the company to allow her to pay Sh10,000 monthly. The company rejected the proposal, saying she still has Sh334,600 left to pay and warning her she must pay her arrears or face additional interest and penalties.