Taking a loan is a great way to get out of a tight financial situation. However, it can also be dangerous if you aren’t careful. When taking a loan against property in Kenya, there are certain things you need to be aware of and abide by to avoid any unfortunate consequences later on. Knowing what you’re getting into and how the loan will impact your future is the best way to protect yourself from getting in over your head. Read on to know more about loans against property in Kenya.
What is a loan against property in Kenya?
There is a kind of secured loan, loan against property (LAP), that you can use to address your current monetary difficulties. It is a technique to address all of your financial issues. In simple terms, it is a solution to all of your economic issues. You may take out a loan backed by your commercial or residential property as collateral with a lender.
The COVID-19 epidemic has caused considerable difficulties for many businesses. During the economic uncertainty that has led to concerns about job and revenue losses, you should consider taking out a loan against property to bolster your working capital. Avoid selling all of your assets in difficult times by taking a loan.
The loans are available based on the following factors:
- The registration of the property
- The market value of the property
- The eligibility of the individual
- The repayment capacity of the individual
These loans are available to all salaried, self-employed business persons, and self-employed professionals. The loan is based on the income of the individual irrespective of the professional background, making it easier for just about anyone to avail of a loan against property for any financial requirements.
Rules to follow when getting a loan against property in Kenya
1. Always borrow as per your repayment capacity
Before you get a loan against your property, have your property valued. You will probably get between 50-90% of the property’s value as a loan. Then, calculate the equated monthly installment (EMI) based on the rate of interest that you are being offered. You can useMwananchi Credits’ online EMI calculator to help you understand how much you will be repaying each month.
The EMI towards your Loan Against Property should not be more than 50% of your monthly income. If your EMI is larger than this, you will be doing away with most of your budget and may not be left with any funds for other important financial investments such as a feasible retirement, funds for children’s education, and more. You may even have lapses in your repayment which puts your property at risk each time the amount piles up.
2. Choose a shorter loan repayment tenure
Loans Against Property offer several attractive features. One such feature is a flexible term for repayment of the loan. This can range from 5 years to 20 years. Most individuals opt for a longer loan term because it reduces the EMI that you pay. As feasible as this may seem in the beginning, the fact is that you will end up paying a lot more money as interest on your loan.
It is advisable to opt for a shorter loan term. However, if you are unable to go for a shorter loan tenure, in the beginning, you always have the option of reducing it in the future. When you have access to additional funds such as a hike in your salary, you can speak to the lender to reduce the tenure. This reduces your burden and also ensures that you can repay the loan faster and release your property
3. Ensure timely and regular payments
If you want to get a loan against property in Kenya, you must establish history. Mwananchi Credit will thoroughly examine your credit history. Having no or bad credit history will make it difficult for you to get a loan. Having regular and on-time payments will help you build a good credit history and make it easier for you to get a loan against property in Kenya. You must repay the loan amount within the specified timeframe. This will show us that you’re a reliable borrower and you can be trusted with more funds in the future.
4. Try to get insurance if the loan amount is high
If you’re taking a loan against property in Kenya, you may be asked to get insurance on the collateral property. If you are taking a mortgage, you may be asked to get insurance on your house. Getting insurance will protect the lender in case something happens to the property and it can’t be used as collateral anymore.
If the house is destroyed or you lose it due to reasons like a natural disaster, the loan will be considered as paid off. This is because the lender will get the original amount that was given to you by the insurance. It’s best to get insurance if the loan amount is high. This will protect you from having to repay the loan amount in case something happens to your property.
5. Read the terms and conditions carefully
Before you take a loan against property in Kenya, make sure that you read the terms and conditions carefully. This will help you avoid any misunderstandings and conflicts later on. You should make sure that you know the amount you’re borrowing, the interest rate, the repayment tenure, and any other additional charges that are applicable. You should also know when and how the payments are due.
At Mwananchi Credit, we make sure that our customers come first. We inform them about all the terms and conditions beforehand so that they are not surprised in the future.
6. Don’t borrow to splurge or invest
Borrowing money is a serious thing. You need to always be careful when taking a loan against property in Kenya. However, you should only borrow money for important things and purposes. You should not borrow money to splurge or invest in unnecessary things.
This is because you have to repay the loan amount with interest. Therefore, the more you borrow, the more you will have to repay. If you borrow for unnecessary things, it can be difficult for you to pay back the amount. Having debts is not a good thing. You should try to repay your loans as soon as possible to avoid any undue pressure.
These are the 6 rules to follow when taking a loan against property in Kenya.
conclusion
You may think that getting a loan against your property is not a big deal. You should know that it is not as straightforward as it sounds. It is important to be aware of all the rules and regulations that govern this type of loan in Kenya. Before you take out a loan against your property, make sure to read this piece which contains all you need to know about how to get a loan against your property in Kenya. You may also want to take a look at the terms and conditions associated with the loan. Once you’ve done that, you can take a loan against your property and finally have your house cover you if anything happens.
Everyone faces different challenges in life. At Mwananchi Credit Limited, we understand your financial needs and we, therefore, provide loans with transparent processing. Apply Today!
