Which is the best Loan Option for Christmas Expenses? Sacco Loans or Bank Loans

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SACCOs and banks have both been at the forefront of offering loans to private individuals and households in Kenya. According to the Central Bank of Kenya (CBK), loans issued to private households by SACCOs and microfinance banks reached KSh 600.70 billion, while banks provided KSh 515 billion.

If you’re considering taking out a loan to cover your festive expenses, you may be wondering whether a SACCO or a bank loan is the better option. These are the factors you will need to consider:

Interest Rates and Fees

Sacco Loans typically offer lower interest rates compared to banks, making them a more affordable option. Many Saccos apply a reducing balance method, which can lead to significant savings over time.

For example, Asili SACCO Society Limited offers rates from 8.5% to 11% per annum. Other SACCOs, like Hazina SACCO, have BOSA (Back Office Savings Activity) loan rates ranging from 5% to 10% per month, depending on the repayment period. Afya SACCO charges 16% annually (1.3% monthly) on a reducing balance.

For Bank Loans, the average bank lending rates in Kenya recently increased to 16.91% (September 2024), higher than SACCO rates. Additionally, unlike SACCOs, which keep their rates stable, commercial banks adjust their rates in response to CBK directives.

Some banks may offer promotional holiday rates, so it’s wise to compare bank offers during the festive season.

Loan Processing Time

Sacco Loans often have a more flexible approach but may require a longer approval process due to member verification or guarantor requirements. The turnaround time for sacco loans can vary between 3 to 7 working days, with exceptions for emergency loans, which can take as little as 12 working hours.

Bank Loans tend to have faster processing times, especially for existing customers with a good credit score. Personal loans can be approved in as little as one business day, but the average processing time is between 2 to 5 days.

Collateral and Security Requirements

Sacco Loans often require guarantors from within the Sacco or savings deposits as collateral. Membership further plays a critical role in securing a loan.

Bank Loans may require collateral for larger loan amounts, but personal loans may not require collateral, although they could come with higher interest rates.

Repayment Terms

Sacco Loans generally offer more flexible repayment plans, often allowing borrowers to set up monthly deductions directly from their Sacco accounts.

Bank Loans have set terms and may not be as flexible with repayment schedules, though they offer options like automatic salary deductions.

Loan Limits

Sacco Loans are limited by the borrower’s savings amount and membership standing within the Sacco. For example, Hazina Sacco offers loans up to 5 times a member’s deposit with a maximum repayment period of 84 months.

Bank Loans may have higher loan limits based on the borrower’s credit score and income level. For instance, Co-op Bank offers loans ranging from Ksh 500,000 to Ksh 8 million with repayment terms of up to 20 years for salaried applicants.

Read: 10 Best Loan Apps to Consider for Christmas Expenses

Membership and Accessibility

Sacco Loans require membership, which typically involves an initial deposit and a waiting period before loan eligibility. This can be a limitation if you need funds immediately.

Bank Loans are more accessible to the general public. Any account holder can apply for a loan, and many banks now offer online applications for convenience.

Holiday Promotions

Some SACCOs, like Maisha Bora SACCO, offer self-guarantee loans for the holidays, allowing members to access 90% of their savings as a loan with minimal requirements.

Banks often roll out holiday-specific loans, sometimes with a waiver on certain fees or reduced rates for a limited period. Checking with your bank can reveal any seasonal offers.

So, which loan option is better for Christmas Expenses?

Choose a SACCO Loan if you are already a SACCO member, need lower interest rates, and prefer favorable repayment terms. SACCOs can be especially beneficial for smaller, manageable loans due to their member-friendly policies and affordability.
Choose a Bank Loan if you need a higher loan amount quickly and are not currently a SACCO member. Banks may have higher interest rates, but their loan limits and faster processing times make them ideal for larger, urgent holiday expenses.