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How to Spot and Avoid Predatory Lenders in Kenya
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How to Spot and Avoid Predatory Lenders in Kenya

Over the past several years, predatory lending practices have been on the rise as Kenyans struggling to make ends meet turn to loans. According to a report published in the East African, The number of Kenyans taking loans from financial institutions has risen by 10 percent since 2019, reaching about 14.4 million in 2021.

While the demand for loans is up, access to good loans remains challenging, often leading to borrowers falling victim to predatory lenders. Borrowing from established financial institutions usually involves a long and tedious approval process with a list long of requirements. You might need a good credit report, solid collateral, and sometimes a co-signer. 

Meeting all those requirements can be hard for most people, especially those in need of emergency loans. Their second best option is to turn to the less traditional lenders. And with many lenders promising affordable and accessible quick loans, how do you ensure you are protected?

You need to learn how to identify and avoid predatory lenders. This will prevent you from taking expensive bad loans that might expose you to more financial troubles.

This article will explore what predatory loans are, how you can spot them, and step you can take to avoid them.

Read Also: How Do I Decide Whether to Take a Loan or Not?

Who is A Predatory Lender?

Predatory lenders are money lenders who practice illegal money lending tactics that lure their victims with the promise of an easy loan but charge exorbitant interest and unreasonable charges on it. These fees often make the loans impossible to repay. 

Predatory lenders prey on vulnerable borrowers desperate to solve an immediate financial emergency or offer credit where no one else will. These lenders often use unfair and deceptive sales practices that disguise the actual cost of borrowing. Predatory lenders typically target people with bad credit, who lack financial knowledge, and those who can’t afford the loan they want.

When you default on a loan from a predatory lender, they will often penalize you and ballon the amount you owe. Ultimately, they can resort to harassment, intimidation, and sometimes violence. This might involve shaming you, selling your collateral without warning, or coming after your assets with auctioneers. 

Read Also: How to Waste Loan Money in 8 Simple Steps

Examples of Predatory Lenders

In Kenya, some types of loans that are often associated with predatory lending practices include:

  1. Digital and personal loans from unlicensed and unregulated lenders with high-interest rates and short repayment periods
  2. Shylock lenders who offer low value for your items. For instance, they might require your laptop to offer a Ksh2,000 loan.
  3. Rent-to-own loans with inflated prices and interest rates - For instance, you get a motorcycle or a kitchen appliance on credit but end up paying 2 to 3x the retailing price
  4. Logbook loans with hidden charges, high-interest rates, and unreasonable terms and conditions
  5. Personal loans and business loans with too-good-to-be-true offers - For instance, a lender might promise huge loans despite your negative CRB listing but often come with hidden terms and conditions
  6. Buy now, pay later loans with hidden fees and interest that inflate product prices. 

How to Identify a Predatory Lender 

1. The Have High-Interest, Hidden Fees, and Unfriendly Repayment Terms 

Predatory lenders often charge excessive interest and fees that can significantly hike your loan costs, and they are often hidden in plain sight. For instance, a lender might promise a 1% interest rate but fail to give more info. Being vigilant is necessary to avoid blindly agreeing to such a loan when the rate you were offered is 1% daily. To avoid this, you should always consider the annualized interest rate. 1% daily interest means you are taking a loan with an APR of 365% p.a.

These lenders often hide the true cost of the loan in the terms and conditions of their product. This includes the annualized interest rate and all the associated fees. The terms are often also skewed to favour the lender and exploit the borrower, and they are written in complicated hard-to-understand language. To avoid this, always take time to read and understand your loan terms, and if you can’t, talk to an expert to guide you.

2. They Will Offer Tempting Loan Terms 

Predatory lenders often have tempting terms that are meant to deceive and entice a borrower into taking a loan they can’t afford or to just blind them. First, they typically have an easy and fast application process. By making the process very direct, they prevent you from asking questions or taking time to rethink your decision. This fast process can lead you to sign up for a loan you don’t fully understand.

They promise no credit check and will give you a loan if you meet other vague requirements. For instance, as far as you have an asset to use as collateral, they will offer you a loan. This is contrary to reputable lenders who take time to look at your creditworthiness to gauge your ability to repay a loan. Even if you are using your title deed, they will still prioritise your credit history.

Predatory lenders already know you are a high-risk borrower when they tempt you. Therefore, they can offset the risk of lending without credit checks by charging high-interest rates and fees on their loans. Additionally, they know they can always repossess your collateral if you default.

Read Also: 10 Warning Signs You Are Not Ready to Take a Loan

3. They Prioritise Practice Asset-Based Lending 

While secured loans are not bad, predatory lenders often prey on their victims by offering this type of loan to maximize their returns. They don’t consider other aspects when lending, just the collateral. 

They do this in two main ways:

  1. Selling you a product on higher purchase terms, inflating the cost with high interest and fees, and when you default, they repossess their product, and you end up experiencing double tragedy. You lose the product and all the payments you have made towards it.
  2. Asset financing with false appraisal - This happens when they give your collateral a low forced-sale value. This can prove detrimental in case of default as you can lose your asset, and it will be auctioned for way below its market value. While the lender will recover their money, you will be left counting significant losses.

Read Also: Things to Consider Before Taking a Personal Loan in Kenya

4. They Have Aggressive Repayment Terms and Prepayment Penalties 

Predatory lenders often offer loans with aggressive repayment requirements, such as daily or weekly payments, that increase your chances of default. Reputable lenders offer repayment terms that support planning and growth, typically fixed monthly payments. 

You should always negotiate with your lender and agree to a repayment term that works best for you. For instance, if you are employed and receive your salary at end month, avoid lenders that pressure you to sign up for a loan that requires biweekly payment if you know you can’t manage it.

Apart from aggressive repayment terms, predatory lenders often have unreasonable prepayment penalties. They will not only force you to pay all the possible interest you’d have paid, but they will add extra costs. These penalties are often not communicated and only come up when it is too late. Always read the fine print and discuss with your lender if you anticipate making early payments before closing your loan.

5. They Encourage You to Refinance Your Loan

Edwin, a 37 years old software engineer, never imagined he would fall prey to predatory lenders until a medical emergency left him with no choice but to take out a logbook loan of Ksh100k to cover his expenses. He planned to repay the loan in four months, but life had other plans. After the third month, he found himself struggling to make the last payment.

His lender approached him with an offer to refinance and roll over the loan, promising more manageable payments. Edwin, desperate to avoid default and the consequences that come with it, jumped at the opportunity.

Unfortunately, Edwin soon realized that he had fallen victim to a predatory lender who was more interested in making a profit than helping him. The lender knew that Edwin was struggling to make the last payments and would likely never be able to repay the loan in full. By refinancing and rolling over the loan, the lender could continue to charge him interest, increasing the amount Edwin owed and keeping him indebted for longer.

The repeated refinancing and rollovers only worsened Edwin's debt, and he ended up owing much more than he was at the beginning. The lender had used car-loan rollovers, a notorious predatory loan practice, to trap Edwin in a vicious cycle of debt. 

Edwin's experience is a cautionary tale about the dangers of predatory lending. Predatory lenders encourage refinancing to trap their customers in debt and exploit them.

Read Also: When Does Taking a Logbook Loan Make Sense?

How to Protect Yourself From Predatory Lenders 

  • Research, Research, and then Research Some More: When applying for any loan, always do your due diligence by researching different lenders and comparing their costs and terms. Take a look at their reputation and read reviews from other borrowers. Don't be afraid to ask questions and seek advice from friends and family. Don't let confusing terms and jargon trick you into signing something you don't understand. 
  • Take Only Loans You Can Afford: Predatory lenders target people they know will default. Therefore, Do not let anyone convince you to borrow more money than you know you can afford. If you get behind on your payments, you risk losing your collateral, damaging your credit score, or bringing yourself a bigger financial burden.
  • Ensure Your Lender is Licenced: A licenced lender who plays by the rules won't pry into your personal information, confuse you with vague jargon, or push you to borrow more than you need. They're regulated and have a physical location you can visit. On the flip side, if a lender is acting shady and disregarding these guidelines, they're probably unlicensed and out to exploit you.
  • Avoid Unsolicited Loan Offers: Steer clear of unsolicited loan offers from unknown numbers or lenders who obtained your information illegally. It may be tempting to jump on that SMS, WhatsApp, or email loan offer with its irresistible terms, but chances are, it's a con artist trying to take advantage of you. Instead, make sure to seek out legitimate lenders through proper channels and protect yourself from scams.
  • Consider Other Alternatives: Before rushing to take a loan or accept one, take your time to consider alternative financing options. For instance, consider borrowing from friends, asking for a salary advance from your employer, or looking for formal lenders. You should also take steps to free yourself from loan dependency by building a budget, investing in insurance, and creating an emergency fund so you don’t have to rely on fast cash loans for an unexpected expense.

Read Also: 5 Reasons Why Taking Loans Won't Stop Your Financial Troubles 


Protecting yourself from predatory lenders starts with being proactive and informed. So, take charge of your financial well-being today! First and foremost, always trust your gut feeling when you have doubts about a lender. If something seems fishy, it probably is. 

Secondly, work towards building your credit score so that you can qualify for loans with better terms and from reputable institutions. These institutions typically have high qualification needs and many requirements. However, they’re more protective of their clients than predatory lenders. 

But don't stop there - invest in your financial literacy to ensure you have the knowledge and skills to make informed decisions about your money. Protecting yourself from predatory lending is about being savvy, staying one step ahead, and avoiding bait.

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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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