Is This Kenya's Most Affordable Digital Loan?

This Article is part of our Money254 Partner Series produced in partnership with Timiza Kenya. For more on Money254’s editorial policy, read here.  

For many borrowers, the total loan cost is the first thing to consider when borrowing. A high cost may hurt your ability to repay and cause you to waste money. To prevent this, you need to look for affordable credit, such as those from digital lenders. 

Digital loans are short-term debt products you can access directly from your phone through an app, website, or USSD. Digital Credit Providers (DCPs) offer loans with an average repayment period of 30 days. 

Until recently, most DCPs were synonymous with predatory lending practices. However, due to central bank regulations and commercial banks starting to offer the same type of loans, digital loans have become more affordable and accessible to Kenyans. 

Today digital loans are the preferred emergency loan option for many Kenyans. Therefore, it pays off to shop for an affordable one. 

This article will explore some of the benefits of affordable digital loans and look at an example of a low-cost digital loan.

Read Also: Timiza Review: Highest Limit, Lowest Interest Among Digital Loans

Benefits of Affordable Digital Loan

Managing Unexpected Expenses with Ease

Life happens, and sometimes you need access to emergency funds; if you don’t have them or have exhausted them, you are left with two choices. Either drain your savings or liquidate your investments. Both these options can have adverse effects on your financial growth. Worse, they can leave you vulnerable to additional, unexpected future costs. 

So what’s the alternative? 

You can consider an affordable digital loan.

Affordable digital loans are designed to be fast, easy, and accessible. They are often available to those with lower credit scores or those who may not have access to traditional bank loans. Most importantly, some digital loans, such as Timiza, have lower interest rates, making them an attractive option for those looking to get out of a fix.

One of the most significant benefits of an affordable digital loan is that it allows you to manage unexpected expenses easily. Instead of draining your savings or liquidating your investments, you can take out a loan to cover the costs. This gives you the peace of mind of knowing that you have a cushion in your savings and can avoid any potential adverse effects on your financial growth.

Moreover, taking out a loan may be cheaper than liquidating your investments, especially if your investment returns are higher than the loan's interest rate. For example, suppose your investment brings you a return of 9% per month, but you can qualify for a digital loan with an interest rate of 7.29% per month. In that case, taking out a loan could be financially more sensible than liquidating your investments.

Income Smoothing On Demand

Managing your finances can be challenging, especially when unexpected expenses arise, or payments are delayed. An affordable digital loan can help you in such cases. This type of loan can provide a cash injection between paychecks or cover expenses whether you are employed or a business person.

Affordable digital loans are available at lower interest rates, making them a viable option for both individuals and businesses. Additionally, they will prevent you from interrupting your plans or going through a long process of acquiring a personal or business loan from traditional lenders. These loan types often have longer terms, which typically means higher loan costs.

Let’s look at two examples of how affordable loans can help you with income smoothing.

For instance, if you're a business owner, you may have to pay suppliers, even if your customers haven't paid you. An affordable digital loan can help you bridge the gap until your customers pay you. You can avoid disruptions in your supply chain.

Similarly, if you're an employee, you may face delays in receiving your salary, affecting your ability to meet your financial obligations. An affordable digital loan can help you pay your bills and avoid late payment fees.

However, ensuring you can repay the loan within the stipulated 30 days is crucial. Failure to repay the loan can lead to additional fees and negatively impact your credit score. Therefore, before taking out an affordable digital loan, assessing your financial situation and ensuring you can repay the loan within the agreed time frame is essential.

Manageable Repayment Plans

Affordable digital loans have become increasingly popular in recent years due to their many benefits, including providing manageable repayment plans. Unlike other forms of credit, digital loans offer fixed terms and interest rates, making it much easier to plan your finances and stick to a budget.

When you take out a digital loan, you know exactly how much you will pay back and when the deadline is. This can help you budget more effectively and avoid surprises or unexpected expenses. In contrast, credit cards offer the same benefit, but payments are often unpredictable and can vary significantly from month to month – depending on how much you spend.

One of the main advantages of affordable digital loans is that they offer shorter repayment periods. Most digital loans have a repayment period of 30 days, meaning that you can pay off your loan quickly and avoid accruing high levels of interest over time. This can be particularly useful if you borrow money for a short-term expense.

Flexible Use Cases

One of the significant benefits of affordable digital loans is their flexibility in terms of use cases. Coupled with low costs, affordable loans are ideal for those who need financial assistance without the burden of high-interest rates and restrictive loan terms.

With affordable loans, borrowers can use the money as they see fit without any restrictions from the lender. Borrowers can use the money for emergencies, such as paying hospital bills or avoiding defaulting on another loan.

Traditional lenders, such as banks, may hesitate to give loans for such purposes, and if they do, they might require collateral or salary garnishment. Additionally, other unsecured lenders like shylocks or payday loans can have higher interest rates, which may hurt borrowers in the long run. 

This is where affordable loans come in handy since they offer flexibility and low costs, making them an ideal choice for borrowers who need quick access to funds.

For instance, consider the Timiza digital loan, which can allow you to borrow up to Ksh150,000, depending on your credit history, among other requirements. If you grow your limit to that amount and meet other requirements, you can take a loan of, for example, Ksh100,000 if you are in a financial fix other lenders wouldn’t consider. If you repay the loan within 30 days, the loan repayment amount will be ksh107,290.

Positive Credit History

If you are working on building your credit score, an affordable digital loan may help. These loans are suitable for building a credit history with a specific lender, especially for those who have difficulty accessing credit from traditional lenders or are new to borrowing. This way, you can access credit whenever you need it and start building credibility with traditional lenders for when you need bigger loans. 

Positive credit history is crucial for many financial endeavors, such as buying a home or car or taking a business loan. However, building credit can be challenging, especially for those with difficulty accessing credit from traditional lenders. This is where affordable digital loans can be helpful, especially when borrowing from commercial banks.

However, it is essential to be cautious when taking out an affordable digital loan. High APR and fees can put you in a precarious financial situation where you cannot repay the loan, damaging your credit score in the long run. 

Remember that if you cannot repay your loan on time, your credit score will drop, defeating your original intention to build credit. Therefore, taking out loans that you can comfortably afford to pay back in time is essential.

No Collateral Requirement 

The rise of digital lending platforms has enabled anyone to access credit without having to pledge their assets as collateral.

Digital loans are unsecured, meaning you don't have to worry about putting up your car, home, or any other asset as a guarantee that you'll repay the loan. This is particularly advantageous for those who don't own valuable assets or those who don't want to risk losing their assets if they can't repay the loan.

With digital loans, the lender assesses your creditworthiness by looking at your credit history, income, and other factors. They use this information to determine whether you qualify for a loan and how much you can borrow. 

Despite the lack of collateral, some lenders, as seen in the example above, have lower loan costs than some secured debts like logbook loans. However, secured lenders typically offer you higher loan amounts than digital lenders.

While digital loans do not require collateral, it's important to note that failure to repay the loan on time can still have significant financial and credit consequences. If you default on the loan, the lender may report the missed payments to credit bureaus, damaging your credit score. This could make it harder for you to access credit in the future.

Low-Cost Loan Example: Timiza Digital Loan 

Timiza digital loan is a short-term loan offered by Absa Bank Kenya, which can be applied for by anyone, regardless of whether they have an Absa Bank account. This sets it apart from similar mobile loan products offered by other commercial banks that require applicants to be existing account holders. 

Timiza offers a true alternative to other digital lenders such as Zenka, Tala, and Branch, offering loans of up to 30 days with a competitive interest rate of 7.29%. This makes it one of Kenya's cheapest short-term loan options and an attractive choice for those seeking affordable credit from trusted lenders without needing an existing banking relationship.

How Timiza Affordable Loan Came Through For Peter

Peter, a small business owner, was hit with an unexpected expense when his bottling water equipment broke down, and he needed to have it repaired urgently. Unfortunately, most of his savings were tied up in a fixed deposit account that would not mature for another 25 days. He needed a quick solution to fix his machine.

Luckily, Peter had been a Timiza customer for almost a year and had built up his credit limit to Ksh95,000 by borrowing and repaying his loans on time. He decided to take advantage of this and applied for a Ksh80,000 Timiza digital loan to fix his machine.

Thanks to the quick and easy application process, Peter received the loan within hours and used the funds to repair his equipment. He was relieved that he didn't have to liquidate his savings or close shop, which would have resulted in a potential loss of revenue and profit. 

When his investment matured, he repaid the loan in time, costing him a total of Ksh5,832.