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Should I or Should I Not: Is There Any Reason to Pay Back That Digital Loan? 
Should I or Should I Not: Is There Any Reason to Pay Back That Digital Loan? 
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Should I or Should I Not: Is There Any Reason to Pay Back That Digital Loan? 

Money254 Partners Team
April 20, 2023

EDITOR'S NOTE: This article is a part of our Money254 Partner Series and is produced in partnership with Zenka Digital Kenya. For more on Money254’s editorial policy, read here

Digital Loans are very accessible, and as a borrower, you might decide to take advantage of this accessibility to default. But loans don't disappear when you default; they can come to haunt you in the future. With that in mind, is willingly refusing to repay a loan a good idea?

Your primary responsibility as a borrower is to repay the loan according to the terms and conditions agreed upon with the lender. However, when it comes to unsecured and easily accessible debts such as digital loans, you can be less hesitant to meet your obligations after borrowing. This can result from borrowing without a repayment plan or refusing to repay.

When you fail to meet that responsibility, you risk jeopardising your finances. 

In this article, we will explore the reasons people give for not repaying their loans, and discuss why repaying your digital loan is good for you and how it can positively affect your financial journey.

Why Some People Don’t Repay Their Digital Loans

1. High APR and Fees 

One of the primary reasons some people don't repay their digital loans is the high annual percentage rate (APR) and fees that come with such loans. Although digital loans offer a convenient way to borrow money quickly, they are generally more expensive than other short-term financing types. 

Failure to repay digital loans in time often leads to the ballooning of the loan, mainly due to the high-interest rates and fees that accrue over time. This, in turn, makes it harder for borrowers to service their obligations, ultimately leading to default or unwillingness to pay back the loan.

To avoid this, borrowers should consider licensed lenders that make it easy to service loans.

Central Bank of Kenya (Amendment) Act 2021 has introduced new regulations to protect customers from unscrupulous digital lenders. They offer three main benefits: 

  • They require that digital credit providers obtain CBK's approval for the charges and interest rates they impose on their loans. 
  • It prohibits lenders from introducing additional fees that make it harder for customers to repay their loans. 
  • They limit the interest and fees borrowers should repay when they default, and their loan becomes non-performing.

2. Short Loan Tenure 

In Kenya, many digital lenders offer loans with a short tenure of just 30 days. While these short-term loans can be convenient and accessible compared to traditional loans, it's important to be aware of their potential drawbacks.

One major disadvantage of short-term loans is their higher APR. If you cannot repay the loan within the short timeframe of one month, the loan cost can significantly increase, making it challenging to repay. Additionally, with short-term loans, you must repay the entire loan amount at the end of the tenure, which can be difficult if unexpected circumstances arise.

To avoid these potential issues, it's worth considering digital lenders that offer slightly longer loan tenures. For example, Zenka offers digital loans with a duration of 61 days, which is longer than most lenders. This longer loan tenure can benefit borrowers significantly, allowing them more time to repay the loan.

3. Debt Cycle 

Compared to other loans, digital loans are more accessible. For this reason, if you are not careful, you can easily find yourself taking multiple digital loans from different lenders.

At the start, this can seem manageable, but this practice can get out of hand, and you might find yourself in a debt circle. A debt cycle happens when servicing loans becomes hard, and you are forced to take more loans to repay existing ones.

Borrowers often find themselves in a debt cycle due to loan stacking by borrowing from different digital lenders. Ultimately, borrowers may feel overwhelmed and unable to repay their loans, leading to abandoning repayment efforts altogether. It is important to exercise caution and carefully manage digital loans to avoid falling into a debt cycle.

4. The Lender Is Not Licensed By CBK

Since the enactment of the Central Bank of Kenya (Amendment) Act 2021 that paved the way for the oversight and supervision of all Digital Credit Providers (DCPs), some borrowers have seen this as a loophole to refuse to repay their digital loans. The new regulations bar unlicenced DCPs from taking actions such as blacklisting defaulters on CRB. 

Some borrowers might think that this will help them avoid repaying a loan and face no consequences. But this can be a bad bet for one main reason. 

Many digital lenders have taken the necessary steps to apply for licenses and are undergoing thorough evaluation by the CBK. Once these lenders have successfully obtained their licenses, they’ll have the right to take action against borrowers who have defaulted on their loans. 

For instance, Zenka has recently obtained its license, which means that any borrowers who have failed to repay their loans can now be legitimately listed on CRB by Zenka.

Why You Should Pay Back That Digital Loan

1. It Helps You Maintain a Good Credit Report 

When you take a loan and repay it on time, you will maintain a good credit report that can be beneficial in many settings. First, it can help improve your creditworthiness. Licensed lenders like Zenka can report your repayment history to CRB, positively impacting your credit report.

A good credit report can enhance your reputation in various situations, such as job hunting. Some employers may request a CRB clearance, and if you have a negative credit report, it could cost you an opportunity. 

A bad credit report can tarnish your name and affect your overall reputation. Therefore, maintaining a good credit report is essential for managing your creditworthiness and safeguarding your reputation in various aspects of your financial and professional life.

2. It Helps You Build A Credit History With a Lender

Emergencies are part of life, and they can always come back. You want to ensure you have a place to turn to when they do. Refusing to repay a loan can negatively impact your creditworthiness, making securing loans from DCPs and other financial institutions challenging.

When you have a history of timely loan repayments with a lender, you increase the likelihood of approving future loan requests. But when you don’t repay, you are essentially burning bridges. 

Additionally, a good loan repayment history can qualify you for higher loan amounts in the future as it signifies to the lender that you are a responsible borrower. Over time, you will be able to build a higher credit limit and have somewhere to turn to whenever you are in a financial fix.

3. It Improves Your Credit Score

Repaying your loans on time can positively impact your credit score, making it easier to obtain credit in the future. This is because licensed lenders report your credit information to CRBs, which other lenders may access and reference when assessing your creditworthiness. 

A higher credit score has two main benefits: 

  1. It makes it easier for you to obtain future credit and may qualify you for lower interest rates and better terms. 
  2. Building a good credit history through responsible borrowing and repayment habits can open doors to access credit from more formal institutions. You can qualify for larger loans such as auto or mortgage loans. 

4. It Helps You Avoid a Debt Trap

When you borrow and don't repay, you might accumulate debts, which can hurt you in the future or lead to a debt trap. A debt trap occurs when it becomes challenging or impossible to repay your debts, potentially resulting in default or requiring you to liquidate your investments to service them. This can significantly affect your finances.

Refusing to repay loans can also lead to an overreliance on debt, resulting in financial instability. This can impede your growth and prevent you from achieving your goals. Additionally, it can cause financial stress, affecting other aspects of your life.


Digital loans are easily accessible, but this doesn’t mean you should borrow blindly. Before applying, ensure you have a solid repayment plan to avoid default which can hurt your creditworthiness. Second, ensure that you practice mindful borrowing; this includes borrowing only what you need and can afford. This will lower your chances of default.

Finally, ensure that you repay your loans in time, as delays can lead to the loan ballooning and making it hard to repay. If you think you are at risk of default, consider contacting your lender and asking for more time. While this might increase the cost of your loan, it can prevent long-lasting damage to your credit report. 

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This Article is part of our Money254 Partner Series. Our partners may suggest topics they would like readers to know about but do not influence what/how we write about it. Money254 remains committed to providing objective information to our audience. For more on Money254’s editorial policy, read here.

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