Knee deep in debt

“Imagine taking a loan, and deciding when to repay. That’s power in your hands!” reads a tagline for one of the country’s leading mobile loaning apps. And, truly, as long as you have a smartphone, you are just a click away from money. 

Instant loans are so tempting that many unemployed youths have found themselves drowning in debt. But, the fun stops once the money hits your account. What follows is weeks and months of tormenting calls and reminders to pay back, often with unreasonably high interest rates. Late charges are also applied daily to defaulters, making it even harder to repay. And if you fail to pay, your name will be plastered on the CRB list and all your acquaintances will be made aware of your defaulting ways, including your friends, colleagues and extended family members.

MILDRED AMBUVI, 25

TEACHER, ST ALLOYS SECONDARY school, VIHIGA
I was introduced to mobile loan apps while in campus seven years ago. After joining Maseno University, I felt I needed a new phone which at the time my parents could not afford.  With the little savings I had, I borrowed a Sh6,000 loan which I used to buy a new phone. I was required to pay it back within one month at an interest rate of 15 per cent. As a student, I felt that amount was too high. However, I paid back by forgoing a number of personal needs and I am proud of that.
 
From that time till now, I have been using mobile loan apps frequently, whenever I am in need of cash. I prefer mobile loan apps because they do not require me to go through a long application process to access the money, and I am always awarded the amount immediately, as long as I qualify.  

The interesting thing about loans is that your limit keeps increasing after you fully repay the loan, so you get tempted to borrow even more money. This may continue to a point where you become unable to repay the loan due to the high interest rates, and before you know it, you will be listed as a defaulter at the Credit Reference Bureau (CRB).

 To avoid this, you need to have a good plan of how to spend the money before applying for it in the first place. Also, you need to manage your expectations and live according to your means. This means avoiding borrowing money just to entertain yourself or friends at the bar.

 In fact, alcoholism is one of the reasons most youths fall into the debt trap. If you must drink, do so responsibly without borrowing. This is one of the things I always consider before applying for any loan. I think women are better at spending their money wisely, and I am no different. 

Since I got employed in June last year, I prefer borrowing large amounts from banks for investment purposes, but I find the interest rates quite high. 

I took a loan worth Sh20,000 in February this year to boost my side hustle and I am expected to pay it back by March with Sh8,000 interest. The amount I borrowed was a great boost to my business and I am glad it is doing very well.

 I am already making daily savings and raising funds from my cloths selling business to pay back the loan, but I would appreciate if the interest rates could be reduced and the duration of payment increased.

 With that, we will be able to invest more using the borrowed money without fear of defaulting.

GEORGE OUMA, 30

CAR WASH OWNER, KISUMU
I think I think loans should be readily available to all in case of emergencies. Unlike banks which require guarantors, all you need to access a mobile phone loan is to answer a few questions. Besides, you don’t need any documents to qualify for one. I prefer mobile app loans because of this ease of access. 

One does not also need to travel to a bank. Moreover, it saves us the embarrassment of being followed around or avoided by friends who may be offended if we fail to pay them back. 

The very first time I took a loan was in 2017 when I was in serious need of financial support. I needed to repair my car washing machine. Neither my friends nor close family members were in a position to assist. At that time, I was unemployed so I was very relieved when my loan request of Sh5,000 went through.

 I was to pay back the amount within a month at an interest rate of 7.4 per cent, but I wasn’t able to do that because of my meagre earnings of Sh600 a day which can barely sustain me. That’s the bad thing about instant loans. The interest rates are quite high especially for low income earners. 

 I paid back before the deadline and was able to borrow from the app three more times, but I defaulted after my last attempt in 2021. I had borrowed Sh16,000 but was unable to repay due to the hard economic times.

Despite the challenges, I don’t have a problem with instant loans. They give you peace of mind and privacy. 

 One of the reasons young people like me find themselves burdened with loans is that most of us are jobless. Many of those who are employed are also living from hand to mouth due to the high cost of living.

 What the government should do to avoid rampant borrowing is to create jobs for the youth. The loans and defaults greatly affect our credit scores. Also, to avoid an increase of young defaulters at CRB, the government should come up with a policy that allows youth to borrow money at low interest rates.

  I would advise my fellow youths to make a habit of borrowing loans from banks where they can be advised on how to spend the money wisely. 

 
NAOMI KIPROP, 24

Personal assistant, ELDORET
For me, mobile loan apps have been a blessing in disguise. Back in campus, I remember there were times when I would be in urgent need of funds but my parents were unable to help. Borrowing from friends would be my only option but I didn’t feel comfortable doing that.   

Although we don’t have to pay back money loaned from friends with interest, it becomes very difficult to relate normally with them when you owe them money. Many times we tend to avoid them. Mobile loans on the other hand grant debtors the highest level of privacy. You never hear about the loan apart from the time to time reminders on payment. I usually find those very irritating.
 
I also prefer instant loans because they can be acquired at one’s comfort, and their interest rates are fair. They also do not require lots of details as is the case with banks, or money borrowed from friends. 

 I took my very first loan in 2018 while in college to boost my bag selling business. At the time, I really needed to increase my stock of bags but I had no cash. I quickly downloaded one of the mobile loan apps and was granted Sh3,000 at an interest rate of four per cent.

 I was able to clear the loan a few months later with the profit from the business. Although the interest rates of some of the mobile loan apps are fair, I think quite a number are exaggerated and leave their borrowers poorer. The situation is made worse by the penalties they impose on defaulters.

 One of the things I fail to understand is why one should pay a penalty of Sh2,800 if they fail to pay back an amount as little as Sh100. I have also heard of nasty experiences from borrowers who had to endure shame after their close family members were frequently contacted when they failed to pay back the loans.

 Debt is no doubt a huge burden among the youth. Many of them don’t borrow money to invest in businesses that may generate profit and allow them to repay the loans, and I largely blame this on lack of knowledge.

 It is time us youths got educated on the appropriate avenues to seek loans, reasons that justify borrowing and the importance of checking the interest rates and terms of repayment before applying for any loan. 

 It is also important to check on the duration of payment and find out whether you will have raised the money required or not. Another important factor to consider when borrowing loans is financial self-discipline. Before making a loan application, draw an elaborate plan of how you will spend and repay the amount. It is also not appropriate to borrow loans from different agents or platforms before settling the initial debt. 

How to avoid the debt trap
Pay with cash whenever possible:
This is one of the simple rules to live by. Strive to always make payments for all your purchases from your pocket, meaning that you should only buy what you have money for. Avoid borrowing for unscheduled buys.

Have a budget:
To avoid spending more than you make, draw a plan of how to spend your money, and include a kitty for emergency situations. This will help you keep track of your finances and know exactly what to forego in case you are running short of cash.

Have a fall back emergency plan: 
If you can, open an account and start saving the little that you can spare. Ensure to have at least six months’ worth of your salary saved up. This will help cover for your needs, including settling your bills, in case of job loss instead of borrowing loans.

Borrow only what you can pay back: 
Avoid borrowing as much as possible. In case of a pressing need, borrow only what you can repay. It is also important to know the terms of your loan payment, including the deadline, so as not to be caught off-guard on the due date. This will ensure you are not strained financially when settling the debt.

In case you have already borrowed and are struggling to come out of debt, here are a few tips on how to get out:

Avoid the old spending habits: 
One of the safest ways to get yourself out of a debt trap is to depart from your old way. Reduce the number of times you go out drinking, learn to eat at home instead of eateries and avoid impulse buying. This will help you save for the pending loan.

Do not struggle alone:
Accept your circumstances and ask close friends and relatives to help you. Go as far as seeking help from financial experts. They can recommend a suitable payback plan depending on your situation.

Settle one debt at a time: 
In case of multiple debts, do not make the mistake of trying to settle them all once. Begin with the lowest amount. Once settled, move to the next until they are all paid up.
 

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