The cheapest personal loans of 2021 and how to apply

A few years back, if you wanted a loan, you walked into a bank and let the loan clerk tell you how much they were willing to loan you, the interest, and the bank charges.

Today, thanks to a system by the Kenya Bankers Association and Central Bank of Kenya you only need to log into www.costofcredit.co.keyou can tell which bank has the cheapest loans before applying for credit.

To find out how much it will cost you to borrow and repay a loan of Sh500,000 in one year, we looked at how this system from KBA and CBK works and identified five banks with the cheapest loans and their requirements.

Sh500,000 loan to repay in 12 months' calculations in the cheapest banks

1. Bank of Baroda

If you take a loan of Sh500,000 for 12 months at this bank, your total cost of credit inclusive of interest will be Sh30,290. You will pay back a total of Sh530,290 with monthly repayments of Sh44,191. Those eligible to apply are salaried persons, businessmen, and professionals such as doctors. To apply, you will need your ID, a copy of your KRA PIN, certified copies of the last three months' payslips, proof of address, certified copies of the last six months' bank statement (in case of borrowers who are not customers), a guarantor who is a customer to the bank and whose salary is remitted through the bank, and guarantee of the employer.

2. Credit Bank

At Credit Bank, your total cost of credit will be Sh35,904. The total amount you will pay back will be Sh535,904 with monthly installments of Sh44,659.

To get a personal loan from this bank, you will need to be a salaried employee. If you're on contract, the tenure of your loan will match the remaining term of your contract. You will need to present a letter of introduction from your employer, a letter of irrevocable instruction to remit salary, six months certified bank statements from your previous bankers, proof of address, and three months certified and latest original payslips.

3. Diamond Trust Bank

You will repay a total of Sh545,904. This will be inclusive of bank charges and interest amounting. To get a secured personal loan here, you will need to present your KRA Pin, bank statements for the last six months, account status reports if you have loans from other banks, copies of logbook, valuation report, and title deed if any of them is security, details of your fixed deposit is allowed to be security.

4. Co-operative Bank

The total amount you will pay back will be Sh548,439 for the personal secured loan and Sh551,258 for the personal unsecured loan. You will however be eligible to borrow a minimum of Sh50,000 and a maximum of Sh4 million. To get this loan, the bank will require that you be employed with a regular salary. Your application will be appraised with your credit score. If your credit score is good and you have a regular salary, the bank will require that you open an account and submit a copy of your KRA Pin, salary slips for the last three months, a filled loan application form, and a copy of your ID.

5. Bank of Africa

At BOA your cost of credit will be Sh49,593. Your total interest will be Sh33,093 while the total amount you will repay will be Sh549,593. To get a loan from this lender, you will be required to apply for a minimum of Sh50,000 and a maximum of Sh2 million. You will present your KRA Pin, a copy of your ID, original payslips for the immediate past three months, certified copies of bank statements for the last six months if you're not a bank customer currently, a letter from your employer confirming employment and commitment to send your monthly salary through this bank, and a duly filled loan application form.

How cheapest loans compare to expensive ones

According to KBA's cost of credit estimates, the total amount you will repay if you take the same loan at these NSE listed top tier banks will be as follows:

· Stanbic Bank: Sh550,235 for both personal secured and unsecured loans.

· KCB: Sh551,104 for both personal secured and unsecured loans.

· Equity Bank: Sh551,529 for the personal secured loan and Sh554,029 for the personal unsecured loan.

· Standard Chartered: Sh557,500 for the personal secured loan and Sh552,442 for the personal unsecured loan.

· ABSA Kenya: Sh568,204 for the personal secured loan option and Sh555,704 for the unsecured option.

Takeaway points

If you are looking to apply for a loan, you can either go for a personal secured loan or a personal unsecured loan.

Personal secured loan: This loan is guaranteed by collateral. This includes financial assets that you own such as land, vehicles, or home. This is the collateral that the bank will take if you fail to repay your loan.

Personal unsecured loan: This loan is driven by risk. It can be harder to access this type of loan at some banks. Because the bank will be taking a risk by giving you an unsecured loan, your total cost of credit may be higher. "With this type of loan, the bank will not rely on your assets as collateral. They will rely more on your creditworthiness. You may need to provide proof of a steady income and be an account holder at the bank for a set period ranging from three to six months," says Josephine. Your borrowing limit may be lower as well.

You may get up to Sh4 million if you are a government employee or if your employer has an agreement with the bank.

The charges: The longer the duration you get to repay, the higher the amount you will repay. Josephine adds that you should get all the charges that will be added to your total cost of credit. Some of the charges may include, negotiation fee, credit life insurance, processing fee, legal fee, levies and duties, valuation fee, late repayment, and default penalties.

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