Borrowing for the right cause is wise. However, you should know that borrowing money is an instant debt, and once you are in debt, you pay extra for the privilege.
Unlike secured loans which require the borrower to pledge collateral against the loan, either in part or wholly, unsecured loans are given by the lender without any need for the borrower to offer up any security.
According to Jacob Kimathi, an accountant in Nairobi, for a borrower to qualify for an unsecured loan, the lender will have carefully studied the borrower’s credit history and financial circumstances and will be reasonably confident that the borrower has the capacity and the character to repay the loan sufficiently.
Who qualifies?
Although the unsecured loan requires no collateral, banks are quite choosy on who qualifies for the offer. In most instances, the most targeted are the salaried employees because the deductions are usually made by the employer.
In case the borrower leaves employment and defaults on the repayments, the lender will still have legal recourse against the borrower despite there being no security offered upfront for the loan.
“Banks assess the pay slips of the borrowers and their credit history before determining their credit worthiness,” says Kimathi. Some banks may require a borrower to hold a salary account with them.
According to Kimathi, banks today are in partnership with credit reference bureaus and defaulters can never borrow from another bank unless they have cleared with banks they owe money.
Usually all bank loan defaulters are blacklisted and the information stored by credit reference bureaus.
Saccos, on the hand, offer unsecured loans repayable after shorter periods, usually one to two months because of their limited liquidity.
One such offering is the instant loan payable within a month and salary advance payable within two or three months. but which requires a borrower to hold a salary account with the Sacco.
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