All About Salary Advance Loans in Kenya

The Kenyan economy is going through a hard time and Kenyans are the ones taking the hit. With the shilling losing its value, inflation rising, and prices of goods shooting, Kenyans are left with nothing in their pockets. They therefore have to find other means of covering their bills and obligations. These alternatives can include loans.

One of the loans available for Kenyans to take advantage of are salary advance loans. 

This article will delve into what these loans are, their qualifications, how to calculate how much you can access and the alternatives available.

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What is a Salary Advance Loan?

A salary advance loan is a loan designed to allow individuals to have immediate access to money to cover emergencies and unexpected expenses. The loan is deducted from their next paycheck. These loans are provided by financial institutions or credit companies and are also known as cash advances or payday loans.

These are the characteristics of a payday loan.

• Short-term: These loans are provided on a short basis, typically between one and four weeks, depending on when the next paycheck is due.
• Limited loan amounts: The amount accessible through a salary advance is limited as it is dependent on your income. The higher your income, the more you can access.
• Quick approval and disbursement: These loans are quick to access with minimal paperwork. Since they are meant to be emergency loans, they are usually disbursed within a few minutes to a few hours, depending on the processes and procedures of the issuing company.
• High interest rates: The rates on these loans are usually very high. These loans are meant to be accessed only when you have emergencies; otherwise, the interest rates are exorbitant.
• Repayment terms: These loans are meant to be paid using your next paycheck, including the interest on the loan. Some lenders might allow the loan to be carried forward but usually at a higher interest rate or with additional fees. This carryforward can lead to a debt cycle if not well managed.

The nature of salary advance loans is that they are a last resort. They also need to be prudently managed to avoid a debt cycle.

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Qualifications For Salary Advance

Qualifications for a salary advance loan can vary slightly depending on the crediting organisations. However, there are those qualifications that cut across the board. They include:

• Employment: These loans are given to people with proof of employment or regular benefits. This is to ascertain that you have money coming in at the end of the month to offset the loan. The banks can ask for either your previous payslips, bank statements, or proof of employment, depending on their terms and conditions.
• Minimum income: Banks have minimum income to ensure that the borrower can pay the loan back. The minimum income can vary from organisation to organisation and from person to person.
• No credit check: In most cases, the banks do not conduct a thorough credit background check. Once they ascertain that your next paycheck can offset the loan plus interest, they advance you the money.
• Salary processing account: Some lenders require that your salary processing account be with them so that they can deduct the owed amount once the salary enters your account.

It's important for borrowers to carefully review the qualification criteria and terms of any salary advance loan before applying. Additionally, borrowers should consider alternatives to salary advance loans, as well as exploring other forms of short-term borrowing with lower costs and fewer risks.

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How To Calculate Salary Advance 

The amount you can access through a salary advance varies from lender to lender. However, according to the Employment Act 2007, deductions to an employee's salary should not exceed two thirds of their salary. This is meant to protect employees from predatory lending and also ensure that they have at least a third of their paycheck to run other facets of their lives.

Therefore, when calculating how much you can access through a salary advance, you should understand that you cannot access more than 75% of your paycheck.

Secondly, the amount you access will depend on whether you are servicing other loans. If you have other obligations, that takes down the amount you can access.

In addition, different lenders have provisions for how much salary advance they can extend. These provisions lie between 30% and 50%. The repayment period also varies, as do interest charges and other fees.

Mark you, the amount you access should also allow for deductions of interest charges and fees.

Salary Advance And Salary In Advance

The major difference between a salary advance and a salary in advance is that a salary advance is given by a lender, whereas a salary in advance is given by the employer. Salary in advance is payment expended to the employee before payday. This advance is issued according to employer policy. It can be interest and fees free or it might attract some fees, depending on the payroll policy of the employer.

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Alternatives To Salary Advance Loans

A salary advance loan can be exorbitant and therefore, before taking one out, you should consider other alternatives first. These alternatives can include:

Emergency savings: Emergency savings can provide a safety net for unexpected expenses. These savings can come in handy in place of salary advance loans.

Negotiate payment plans: If you are having a hard time and your obligations are making it difficult to access the funds you need, negotiate payment plans with your lenders. Many lenders are open to negotiating terms to make it manageable for borrowers to pay back their loans.

Borrowing from family and friends: While this can be difficult, it is worth considering its viability since loans from family and friends are more lenient.

Side gigs and freelancing: You can also opt to take on an extra shift, start freelancing, or take other gigs on the side to make the money you need.

Sell unused items: Instead of taking a high interest, short term salary advance loan, you can sell unused items to raise the amount you need.

It's important to carefully consider all available options and choose the one that best fits your financial situation and needs. 

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Wrapping Up

Borrowers should carefully consider the terms and costs associated with salary advance loans before taking one out. The high interest rates and fees can make them an expensive form of borrowing.

Additionally, relying on these loans as a regular source of funding can lead to financial instability and debt problems. Alternatives to salary advance loans exist and should be considered first.