Mobile Loans… THE DEBT TRAP

According to data from a study on consumer trends by Consumer Insight, four out of every 10 Kenyans polled rely on mobile loans for credit. This is against one out of 10 Kenyans who prefer bank loans. Mobile loans appeal to many due to the lack of security required and convenience attached where funds are disbursed to users within minutes in many instances.

Another study carried out FSD-Kenya, Central Bank of Kenya, Kenya National Bureau of Statistics and Consultative Group to Assist the Poor shows that available digital loan products have not improved livelihoods.

While mobile loans have their advantages such as helping you cater for emergencies, it’s disadvantages far outweigh the positives. Here’s why…

Outrageous processing fee charges and interest rates

Before advancing the loans, some of the loan providers usually deduct a certain amount from the loan, meaning you will have to borrow a higher amount in order to meet your needs. In addition, after getting the money borrowed, you have to transfer it to either MPESA or Airtel money in order to access it. These are additional charges pegged on the loan that you have to pay for.

On interest rates, it is noteworthy that the mobile loans are not bound by the Central Bank interest regime and so this gives the loan providers leeway to charge exorbitant monthly rates. Also, the ease with which the loans are available encourages one to engage in vices. According to a recent survey, of the 6.5 million Kenyans who borrow money using digital platforms, 31 per cent used the cash to try their luck in betting.

Short repayment periods

Mobile loan repayment period ranges between two weeks to one month. This usually catches many youths unawares hence they end up defaulting on the loan. Besides an additional penalty fee, defaulting may see you being listed with the credit reference bureau (CRB). This ultimately destroys your credit rating and you may find it difficult to access loans from any facility for quite some time. A recent report by a credit reference bureau indicated that more than 2.7 million Kenyans have been blacklisted owing to defaulting on mobile loans.

Very high defaulting charges

It comes a time where you don’t have control on when to receive your salary or payment for a work done. In such situations, paying the loan may have to be postponed as you attend to more pressing matters. However, whoever gave you the loan does not understand that and ends up adding charges each and every single week depending on the amount you borrowed.

In the end, you may find yourself paying double the amount you borrowed. Also, there is a high likelihood that you will become a prisoner of the loans as it will reach a time where you will borrow from one loan provider to repay another loan provider. To put it simply; you will be borrowing from Peter to pay Paul.

One of the ways to avoid this vicious cycle is to prioritise your needs, that is, refrain from purchasing items that are not critical for survival. If you are already in this quagmire, find ways to pay off your debts and once done, delete all the mobile loan apps from your phone.