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9 Types of Consumer Debts and How to Get Them in Kenya
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9 Types of Consumer Debts and How to Get Them in Kenya

Consumer loans are a craze that has taken Kenyans by storm. According to Business Daily, Six of the top 10 downloaded free software on the Google Play Store in Kenya are mobile loan apps. Mobile loan apps offer digital loans, Kenya's most common type of consumer loan.

Consumer debts are loans you incur for personal, family, or household use. Some of the most common types of debt people take on, and there are many to choose from depending on your personal or household needs.

When you have an emergency like a car breakdown but don't have cash at hand, need to buy medicine not covered by your insurance, or can't afford your postgraduate school fees, you can use consumer loans to finance your needs. 

Consumer loans can also be used to invest in personal assets that can help you in the long run. You can use them to buy a car or your tools of the trade to generate more money or a house to build wealth and equity.

This article will explore nine types of consumer loans in Kenya, where to get them, their uses, and some things you should look out for when taking them.

Read Also: 5 Investment Strategies that Will Keep you Financially Stable

Auto Loans

An auto loan is a type of consumer loan that allows you to borrow money to buy a car for personal use. You can also borrow for commercial purposes. It is a secured loan where the car is the collateral. While you will drive away with the vehicle after the end of the loan process, the lender will retain ownership as the logbook will bear their names till you complete car payments.

The process is often simple once you find a trustable lender. First, you will need to demonstrate to them that you can afford an auto loan and meet the minimum monthly repayments. The lender will perform their due diligence and get you pre-qualified. You will then need to complete the paperwork, agree to the loan terms, pay a deposit, and drive away with your car.

Auto loans have grown in popularity in Kenya over the last few decades, and it is one of the easiest ways to own a car. But the industry is rife with predatory lenders; therefore, compare different auto loans and find the ones that align with your needs. The three most common auto loan lenders are:

  1. Traditional financial institutions like banks 
  2. Microfinance Institutions (MFIs)
  3. Car dealerships that sell on higher purchase terms

Read Also: FULL GUIDE: The Process of Car Financing in Kenya 

Mortgage Loans

Buying a home in cash or building one from scratch can be unattainable for most people. It will require saving and investing for an extended period. And over that period, you might spend a considerable chunk of your income on paying rent and enriching your landlord. A mortgage loan can help you become a homeowner and use your rent to build equity.

A mortgage is a type of loan you can take to purchase or refinance a real estate property such as a house or land. The lender will retain 100% equity initially, but you gain ownership as you pay the deposit and subsequent monthly installments plus interest. Once you have completed the repayment, which usually lasts five to thirty years, the lender will transfer the property to you.

Mortgage loans are typically offered by financial institutions such as banks and SACCOs and housing cooperatives such as NACHU.

Read Also: Homeownership in Kenya Option 6: All About Mortgages

Debt Consolidation Loans 

Servicing many debts can be stressful and expose you to more significant risks, like being listed in the CRB when you forget to service one of them in time. Let's say, for instance; you have debts from four lenders. You have a digital loan, an auto loan, you haven't finished paying off your HELB, and you recently got a credit card. 

You realise your debt problem and decide to kill all four birds with one stone. One of your best options could be to consolidate your loans.

To accomplish that, you will need to take out one big loan to pay off all your debts. You will have paid all your debts, but you will have only one loan to settle. The type of loan is called debt consolidation. The idea behind it is to lower your stress levels and make it easier to manage your liabilities as a single unit.

You can apply for a debt consolidation loan through banks, SACCOs, and credit unions. This creditor will often require that you have a good debt-to-income ratio, collateral, and positive credit history. If you don't meet their requirements, they will disqualify you.

Read Also: What Is Debt Consolidation and How It Works in Kenya 

Buy Now, Pay Later

Buy Now, Pay Later (BNPL), commonly known as Lipa Mdogo Mdogo in Kenya, is a type of consumer installment loan. As the name suggests, you can buy a product, receive it, and proceed to complete the payment in series. Let's say you want to upgrade your home entrainment system but don't want to spend thousands of shillings at once. You could approach an electronic dealer who sells on BNPL and strike a deal with them.

While this type of consumer loan has been growing in popularity, it is still not widespread. Some of the most notable examples include Safaricom with their Lipa Mdogo Mdogo phones and M-KOPA solar. Traditional retailers will offer you the Lipa Mdogo Mdogo option, but they will often require you to pick up the item after completing the purchase.

Most BNPL sellers won't charge you interest. But their products will often be more expensive than buying in cash as they have a considerable profit makeup. Additionally, they can encourage you to overspend by purchasing items you wouldn't otherwise afford.

Read Also: Planning for Big Purchases: All You Need to Know

Digital and Mobile Loans

Digital and mobile loans are offered by banks, microfinance and credit institutions, mobile network operators, and fintech companies through USSD, mobile apps, and websites. These are easily the most accessible loans in Kenya. With a few clicks on your phone, you can borrow as much as a lender can offer you. 

These types of loans can come in handy when you are in a financial fix—When you have unexpected expenses but don't have emergency savings when your salary is delayed, and you need to pay rent, or when you want to complete a purchase but don't have cash at hand. Digital and mobile loans can be used for various reasons, unlike most consumer debts that can only be taken for specific purposes like buying a house or a car

But digital and mobile loans come with their drawbacks. First, you can only borrow up to the limit the lender has set for you, and you can't ask for more. You will have to grow your limit by being responsible and paying loans on time. Second, they often have high-interest rates compared to other consumer debts. Finally, they have predatory terms and penalties. You will usually need to repay your loan within a month, and failure to do so can lead you to be listed on CRB as a defaulter.

While they're easily accessible, be careful when applying to get them.

Read Also: Kenya Digital loans: the good, bad and horrifying

Overdraft Loans

Overdraft is an extension of credit that banks and mobile money operators offer their customers to complete a transaction when they have a low balance. If, for instance, you want to pay school fees for your child or send money to your parents and you release you are Ksh2,000 short, an overdraft can come to your rescue.

If you have signed up for the service, your financial provider will let you complete the transaction, but your account balance will be negative. You'll need to top it up to repay the two thousand the bank or mobile money gave you. You will also be required to pay a service fee and any interest or penalties incurred.

The most common overdraft service in Kenya is Fuliza by Safaricom. However, most banks will offer the service to customers who open accounts with them or use prepaid cards. While overdraft can help you complete a purchase and even save you from embarrassment, make sure you familiarise yourself with the terms and fees before you sign up.

Read Also: Fuliza Users Express Regret - Money Weekly

HELB Student Loans

Higher education is expensive, especially for students from humble backgrounds. To give them a chance to afford tuition, the Higher Education Loans Board (HELB) was formed to provide finances to undergraduate and postgraduate students who wanted to pursue their education but couldn't raise fees by themselves.

You can start your HELB loan application by dialing *642# on your phone or visiting the board’s website: First-time applicants can receive up to Ksh50,000, and an additional Ksh8,000 bursary may be awarded to successful applicants.

Before you start your application, you should understand the ins and outs of HELB by going through the Money254 up-to-date HELB FAQ PAGE

Read Also: HELB Loans Open for 2022-2023 First-time Applicants - How to Apply

Personal Loans

 These are secured or unsecured loans borrowed from financial institutions and other credit organisations and used for, as the name suggests, personal reasons. While some lenders might request to know what you will use the loan for, they won't restrict you. You can also get personal loans from friends and family.

You can take personal loans for different consumer uses, like buying a product/service, educating your child, or consolidating your loans. Personal loans can also be used for non-consumer reasons like starting or funding your business.

Before offering you personal loans, lenders will:

  • Look at your credit history
  • Ask for collateral or a guarantor depending on the amount you are borrowing. 
  • Review your debt-to-income ratio
  • Your history with the lending institutions

Read Also: Full Guide: All You Need to Know About Personal Loans in Kenya 

Credit Card Loans

Credit cards have struggled to gain traction in Kenya for years, and few people use them. This can be attributed to different reasons, including consumer preferences and a lack of knowledge about this financial product. Nonetheless, credit cards are ATM-card-like products that let the holder pay for goods and services using borrowed funds from financial institutions, usually banks.

Like digital loans, credit cards have limits that can increase or decrease depending on how responsibly you use them. They also offer revolving, unsecured loans. This means you can borrow as many times as you want as long as you stay within your limit. Additionally, some credit cards will let you use ATMs to withdraw money from the card.

Credit cards also have a short repayment window, usually 30 to 55 days. 

Credit cards are typically used to shop online and at physical stores with point-of-sale machines that let you swipe to complete a purchase. They also come with various charges from joining, annual, monthly interest, late payment, over-the-limit fees, and much more. Beware of these fees before signing up for one.

Read Also: ABCs of Credit Cards: What to Know About Credit Cards in Kenya 


With many consumer loans to choose from, it's easy to get addicted to taking debt to meet your financial needs. But just like any other loans, consumer loans can put your current finances at risk and your future in jeopardy when misused. You might find yourself in a debt trap or debt cycle where you struggle to balance your income with expenses or are forced to take more loans to pay existing ones. 

Most consumer loans are often unsecured and come with high-interest rates and other hidden fees. Always ensure you read the terms and understand how much the loan will cost you. Finally, take only loans you are sure you can repay. Defaulting could lead to being listed on CRB or loss of collapse if the loan was secured. This can lead to long-term financial damage, like financial instability, that might take a long time to recover from.

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Farah Nurow is an experienced Content Writer who enjoys writing creative and educative articles meant to provoke readers' thoughts. He loves sunny weather and thick books. You can connect with him on LinkedIn.

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