Sacco loans for dummies 101

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Sacco loans for dummies 101

This past three months, from August feel like I have been in an intense class on finances.

There are a few lessons I have picked up especially with regard to debt financing. We always have people making jokes about how they have loans to pay and thus cannot leave their paid jobs to go seek pleasure.

I dont know many people in Kenya who are not paying back a debt somewhere.

For a SACCO Loan, most SACCOS in Kenya have a standard interest rate of 1% per month, which translates to an annual rate of 12%. Establish whether the interest is on straight line or reducing balance.

Reducing balance is your friend. This is because the principal amount of the loan decreases as you make every payment. Say if you took a loan for KES 100,000 at a rate of 10% per annum to be repaid over the period of four years.

Straight line interest

The interest for the first year will be 10% of 100,000 which is KES 10,000. This will be the subsequent interest per year for the four years.

Reducing balance method

The interest for the first year will be KES 10,000. While the interest for the second year will be 10% of (100,000- repayment made in the first year)

Always confirm the way the principal being calculated for your loan when you take it.

 

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