Loans are part and parcel of life. You can resort to them for many reasons, whether it's to bridge a monetary gap, pay for education, acquire essential assets like a house or a car, or start a business. Yet, in the realm of borrowing, there exists a fine line between wise decisions and costly regrets.
During a recent conversation with friends, we delved into a topic that often goes unspoken – the instances when people regret their choices to take out a loan. Seven of them poured their hearts off. Their stories revealed instances where taking out a loan led to regret, and they suggested alternative approaches that might have been more prudent in hindsight.
Read Also: How to Avoid Regret After Taking Out a Loan
Kamau, a 30-year-old lawyer, decided to take a Ksh50,000 personal loan to fund his vacation to Diani last December. However, as he'd find out later, this choice came with several downsides, and he regretted his decision.
First, a vacation isn't a necessary expense, which meant, as he found out later, he was borrowing for a non-essential reason. Secondly, by taking a loan, he made the trip more expensive in the long run due to the interest he had to pay. Additionally, it placed a financial burden on him, impacting his overall budget and financial goals.
"Two months after the vacation, I had an emergency and wanted to borrow but I was denied as my Debt-to-Income (DTI) ratio was high," Kamau told me as he recounted how that vacation loan affected his ability to secure a loan for more essential needs.
In hindsight, Kamau wishes he had saved ahead of time to fund his trip, as he'd have enjoyed it without financial stress. He also wished he could have opted for less costly trips, explored local destinations, or postponed his vacation to eliminate the need for a loan.
Nyakundi, a 29-year-old teacher, chose to take a Ksh200,000 logbook loan to finance his wedding.
"At the time, it seemed like a reasonable decision, as weddings are significant life events that come with substantial expenses. My bride and I were eager to have a beautiful celebration and thought that taking a loan would help us achieve our dream wedding," Nyakundi recounts.
He continues, "However, a few months after their wedding, we started to regret our decision. Repaying the wedding loan began to cause us stress and strain our finances. Rather than enjoying the early days of their marriage and thinking about the future together, we were preoccupied with loan payments."
In retrospect, Nyakundi realised that borrowing for a single day's celebration was not worth the financial burden. He now believes that a wedding, while special, is just one small part of a marriage not worth going into debt for.
Nyakundi wished he had taken a different approach. He now understands that setting a wedding budget and having a simple wedding within their financial means would have been a better choice. This would have allowed them to avoid the stress of loan repayments and focus on building a strong foundation for their future together.
Taking a loan can be a tempting solution to various financial challenges, but not all reasons for borrowing are wise. Ouma, a 30-year-old carpenter, found himself in a precarious situation after borrowing money for gambling.
Ouma tells me he was lured by the excitement, overconfidence, and anticipation of winning big. The promise of quick and easy money pushed him to borrow funds to fuel his gambling habit. And the desperation to recoup previous losses made him blind to the risks.
However, the worst-case scenario happened.
"Borrowing to gamble led me into a dangerous debt trap. High-interest loans combined with gambling losses have left me struggling to repay multiple debts," Ouma continues, "to make it worse, after multiple defaults, I have been listed negatively in the Credit Reference Bureau (CRB), and that might affect my future financial endeavours."
Instead of gambling, Ouma wishes he could have channelled his funds towards savings and investments for a more secure financial future. However, he's committed to turning everything around. Ouma has created a debt repayment plan, and he's talking to experts about his gambling addiction, which is the root cause of his financial woes.
Chege is a 33-year-old Nairobi-based businessman with a reputation for taking risks. Over the years, he successfully built two businesses and was no stranger to entrepreneurial endeavours. Through his recent experience, he warns me of the dangers of borrowing to invest in something one doesn't understand.
"Two years ago, a friend approached me with an enticing idea of venturing into agribusiness, particularly by setting up greenhouses for large-scale tomato production. The proposal seemed solid on paper and even though I knew little about farming, I was convinced we could break even within two years."
"To kickstart this ambitious project, I decided to borrow Ksh1,500,000 from my Sacco. Despite my initial hopes, the reality didn't match the plan. Pest and disease outbreaks, coupled with crop failure, plagued the venture from the outset."
"For the first six months, we struggled to harvest and sell any tomatoes. To keep the project afloat, I had to tap into my personal savings and business funds to cover the Sacco loan payments. Eventually, I made the difficult decision to sell the greenhouse business at a significant loss of Ksh600,000."
Chege tells me that without a thorough understanding of the industry, market, or specific business, you're more likely to make decisions based on incomplete information, and you'll be ill-equipped to address unforeseen challenges.
Today, Chege wished he had consulted third parties, started small to experiment, and developed contingency plans before going all out.
Amani is a 27-year-old digital marketer who has been confidently navigating her career until life threw her an unexpected curveball, and she lost her job. Without an emergency fund to fall back on, Amani faced financial uncertainty. Her bills were piling up, rent was due, and she had an expensive lifestyle to maintain.
"I was desperate to bridge the financial gap, and I resorted to taking out a logbook loan, using my car as collateral. It seemed like a quick fix at the time. It allowed me to continue living comfortably while I searched for a new job," Amani told me in a hoarse voice as she recounted how she lost her car.
"Unfortunately, the months went by, and the job search proved more challenging than I initially thought. The interest on the loan began to accumulate, and without a steady income, I struggled to make the loan payments. Inevitably, I defaulted on the loan, and my car was repossessed."
Amani was oblivious to the dangers of borrowing to sustain an expensive lifestyle without an income. As a result, she lost her car, ruined her credit score, and she's currently stressed.
Amani wished she had taken different steps when faced with income loss.
But only if wishes were horses…
Jessica is a 30-year-old teacher who found herself juggling multiple financial responsibilities. She had an existing loan, and the monthly repayments were starting to strain her budget. To ease her financial burden, she decided to take out a new loan, thinking she could use it to pay off the old one. It seemed like a simple solution at the time.
However, life doesn't always unfold as planned. Soon after acquiring the new loan, Jessica began to feel the weight of her decision. The interest rates on the new loan were higher than her previous one, and her servicing the loans old and new loans got harder.
She quickly learned that borrowing to pay an existing loan offers temporary relief but doesn't address the underlying financial issues. Jessica was caught in a debt spiral, where her debt burden grew, making it increasingly challenging to manage her finances effectively and, therefore, took more debt.
In hindsight, Jessica wished she had explored alternative approaches, including cutting expenses, building a debt management plan, and negotiating with lenders.
Realising her predicament, Jessica decided to consult with a finance expert. The expert reviewed her financial situation and proposed a strategy to help her regain control. It included taking out a personal loan with a lower interest rate to consolidate her debts. This approach streamlined her repayments and made them more manageable.
Brian is a 31-year-old pharmacist with a big heart and a penchant for helping others. Last year, one of his close friends approached him with a compelling business idea that required an injection of Ksh100,000 to take off. Being the kind-hearted person he was, Brian couldn't bear the thought of letting his friend down. There was one problem: he didn't have the money readily available.
"Instead of saying ‘no’ and explaining my financial constraints, I took a personal loan of Ksh100,000 from my bank to lend to my friend," Brian told me.
Brian's friend's business venture faced difficulties, and ultimately, it failed. The borrowed money went down the drain, and Brian was left struggling to repay a loan he hadn't used for his benefit. The ordeal strained their relationship, and Brian tells me he had to "cut him off."
In hindsight, Brian wished he had taken a more thoughtful approach, including being honest with his friend about his financial constraints and evaluating the business proposition for all risks. He also learned the importance of setting financial boundaries and putting his own financial health and well-being first.
Loans should be viewed as a financial tool, one that can help you build a better future when used wisely. Rushing into borrowing without careful consideration can lead to a host of problems and financial turmoil like the one you just read about.
Before you decide to borrow, ask yourself: "Is this loan for the right reasons?" Will it contribute to your long-term financial stability, or is it a quick fix that may ultimately lead to more trouble than it's worth? Finally, take time to evaluate your options, budget responsibly, and seek expert advice when necessary.