Top Mistakes People Make When Applying for Personal Loans
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Applying for a personal loan in Kenya can provide a practical solution for covering emergencies, starting a business, or consolidating debt. Kenya’s lending market is diverse, with banks, microfinance institutions, and digital lenders offering various options.
However, many applicants make avoidable errors that lead to high costs, loan rejections in Kenya, or financial stress. Below are the mistakes people make when applying for personal loans and how to avoid them.
- Not Checking Credit Score or CRB Status
One of the most common mistakes when applying for personal loans is ignoring one’s credit history. In Kenya, the Credit Reference Bureau (CRB) plays a central role in approvals. A negative CRB listing from unpaid loans can lead to higher interest rates or outright rejection.
For instance, while borrowers with good records may access rates of 13–15%, those with poor scores can face 17–20%. Before applying for a personal loan in Kenya, applicants should obtain their CRB report from agencies such as TransUnion or Metropol and resolve any errors or outstanding debts.
- Borrowing Beyond Repayment Capacity
Many Kenyans apply for loans without evaluating whether they can sustain repayment. Lenders assess debt-to-income ratios, and high monthly instalments often result in defaults.
For example, a KES 100,000 loan at 15% interest requires repayments of around KES 5,300 monthly. If a borrower earns KES 30,000 with significant expenses, repayment becomes difficult. Borrowers are encouraged to use loan calculators from platforms like Money254 to check affordability before committing.
- Not Comparing Lenders and Loan Products
Kenya’s lending market is competitive, yet many people accept the first offer they receive. Banks like KCB and NBK may provide loans at lower annual interest rates, while some digital lending in Kenya platforms charge daily rates of 0.9–2.2%.
A borrower who takes KES 50,000 from a high-cost lender may end up paying over KES 60,000 in interest in a year. Comparing options on platforms that list multiple lenders helps applicants secure lower costs and better terms.
- Ignoring Hidden Fees and Loan Terms
Hidden fees are another pitfall. Applicants often overlook processing charges, insurance fees, or penalties for missed payments. For example, NBK imposes a 2% negotiation fee, and digital loans can accumulate interest quickly if delayed.
Borrowers should carefully review contracts to understand all terms, including prepayment penalties and salary transfer requirements, before accepting a loan in Kenya.
- Applying for Multiple Loans Simultaneously
Submitting several loan applications within a short period is another mistake. Every application triggers a CRB inquiry, which lowers credit scores and raises the chances of rejection.
To avoid this, borrowers should use prequalification tools provided by lenders like Stanbic or comparison platforms before applying. Limiting applications to one well-targeted lender improves approval chances.
- Falling for Scams or Unregulated Lenders
The rise of digital lending in Kenya has also attracted fraudulent operators. Scammers often promise “instant loans” but demand upfront processing fees without disbursing any funds. Unlike regulated lenders such as Co-operative Bank or licensed apps like LendPlus, these unregulated entities operate without oversight.
Borrowers are advised to confirm a lender’s registration with the Central Bank of Kenya and avoid paying money before receiving their loan.
- Not Preparing Required Documentation
A frequent reason for loan rejections in Kenya is incomplete documentation. Banks typically require IDs, KRA PINs, payslips, and in some cases, employer letters. Even digital lenders like Equity’s Eazzy Loan require active accounts and proof of income.
Missing or mismatched details between IDs and payslips often delay or block approvals. Applicants should prepare documents in advance to avoid unnecessary hurdles.
- Choosing Inappropriate Loan Tenure
While stretching loan tenure lowers monthly instalments, it increases total interest paid. A KES 100,000 loan at 15% repaid over four years accumulates nearly KES 40,000 in interest, compared to KES 22,800 over two years.
On the other hand, choosing a very short tenure may create repayment strain. Borrowers are often encouraged to use calculators to strike a balance between affordability and cost.
Jefferson Wachira is a writer at Africa Digest News, specializing in banking and finance trends, and their impact on African economies.
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