Should You Sue a Logbook Loan Provider for Charging Too Much Interest?

‍Have you ever taken what seemed like a simple loan, only to end up in deep debt?

Let's explore a real court case that sheds light on the importance of understanding loan terms and the implications of high-interest rates.

In November 2020, a Kenyan took a loan of Ksh1,300,000 from a microfinance institution. To secure the loan, they handed over their car as collateral — meaning, if they couldn’t repay, the lender had the right to sell the car.

Unfortunately, things didn’t go as planned. The borrower defaulted, and the lender moved in quickly. They repossessed the car and sold it for Ksh1,500,000 — more than the original loan.

But here’s where it gets messy: by the time the vehicle was sold, the total amount owed — including interest and penalties — had grown to Ksh2,050,328. So even after selling the car, the lender said the borrower still owed them Ksh731,722 in unpaid interest and fees. So they went to court to claim the remaining balance.

The borrower argued the interest was excessive and violated the Banking Act (Section 44A), which limits how much interest can accrue on a loan — basically, it’s meant to protect borrowers from runaway debt. They also claimed the vehicle was worth Ksh2,800,000, and was unfairly undervalued at auction.

On top of that, the borrower said the lender had changed the interest rate from 10% per year to 14% per month without notice — a huge jump.

But when the case got to court, the judge saw things differently.

The court ruled that Section 44A doesn’t apply in this situation. Why? Because the lender isn’t a bank or a deposit-taking institution — meaning they’re not covered by that part of the law. In other words, not all lenders are held to the same limits when it comes to interest.

The borrower also pointed to another case where a court seemed to suggest microfinance lenders might be subject to Section 44A. But the judge clarified that the ruling was not final — it was just an early-stage observation and didn’t set a legal precedent.

In the end, the court said this was a matter of contract. The borrower had agreed to the loan terms — including the high interest — and the court couldn’t change the agreement unless it was clearly unfair or exploitative.

The court cancelled the earlier judgment that had favoured the borrower and ordered them to pay Ksh731,722, plus Ksh50,000 in appeal costs.

In total, the borrower ended up paying Ksh2,281,722 — combining the Ksh1.5 million recovered from the car sale and the Ksh781,722 ordered by the court. 

Read Also: How I Pay Ksh45K School Fees for My Kids Without Digging into My Pocket [Money & Me]‍

Key Legal Ruling

• The court held that Section 44A of the Banking Act does not apply to lenders that are not deposit-taking institutions (e.g. certain microfinance or credit-only firms).
  
  
• The interest rate was upheld as valid because it was part of the contract the borrower signed.
  
  
• Courts cannot rewrite a contract unless it is found to be unconscionable, and in this case, the terms were not deemed unfair enough to meet that threshold.
  
  
• The appeal was allowed, and the borrower was ordered to pay the remaining loan balance and court costs.
  
  

Financial Lessons

1. Know Who You’re Borrowing From

If the lender is not regulated by the Central Bank of Kenya or does not take deposits, key consumer protections like Section 44A and the in duplum rule may not apply.

2. Understand the In Duplum Rule

This legal principle limits the amount of interest that can accrue on a loan to the principal amount. However, it's crucial to note that this rule doesn't apply to non-deposit-taking institutions.

3. Don’t Just Look at the Loan Amount — Look at the Interest

10% per month may look manageable, but over time, that interest compounds quickly. Always calculate the effective annual rate (EAR).

4. Courts Uphold Contracts

Once you sign a loan agreement, you're bound by it. Unless terms are clearly abusive, courts are unlikely to offer relief, even if the loan becomes hard to service.

5. Collateral Isn’t a Clean Exit

Even if your asset is sold to repay the loan, it may not cover the total balance. You could still end up owing money.

Read Also: Win for Car Owners as KRA Changes How It Calculates Tax on Imported Vehicles‍

Bottom Line

When taking a loan, the fine print is everything. A loan may seem like a quick solution when you're in a tight spot, but without fully understanding the terms, it can easily become a long-term trap. 

This case is a clear example — the borrower lost their car, ended up with a hefty bill, and still had to pay even after going to court. Before you take any loan, take time to research the lender, confirm whether they are regulated, and carefully read the agreement, especially the interest rate and repayment terms. If anything is unclear, ask questions or consult someone who understands the details. And if you ever feel that the terms are exploitative, speak up and report it. Because when it comes to borrowing, what you don’t know could cost you far more than the loan itself.