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When are Sacco Loans Better Than Bank Loans?
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When are Sacco Loans Better Than Bank Loans?

Choosing the right financial institution can make a huge difference when borrowing money. Often, this begins by choosing which type of institution, such as a Sacco or bank, to use. At a glance, they seem the same. After all, they're both offering loans. But they are not. 

Knowing where to borrow and selecting the right institution can lead to cost-effective loans, access to personalised services, increased accessibility, and overall good borrowing experience.

Several factors will influence your choice of institution when borrowing money. By carefully considering your specific needs, you can make an informed decision that aligns with your financial goals and priorities. This article will explore six scenarios when Saccos loans are better than bank loans. 

Read Also: 5 Reasons to Join a Sacco in 2024

When You Seek A Lower Interest Rate And Want To Avoid Excessive Fees

Saccos were originally established with the primary aim of providing their members with affordable financial services, including credit facilities at competitive interest rates. Today, Saccos are known to charge low interest rates, some averaging 1% per month.

Saccos can keep the cost of their loans low as most of their funding is generated from members' non-withdrawable deposits. On the other hand, banks may rely on their customer deposits to generate new loans for borrowers. According to Bussiness Daily, this over-reliance on customer deposits causes banks to incur higher costs of funds, which they offset by offering high-interest loans compared to Saccos. 

In addition to higher interest, banks often levy various fees, such as loan origination fees, processing fees, annual fees, and penalties for late payments, which can significantly inflate the overall cost of borrowing. On the other hand, Saccos typically have fewer and lower fees, making them an attractive option for individuals seeking low-cost loans.

Opting for a low-cost loan from a Sacco offers numerous benefits. It reduces the financial burden, enables borrowers to save money over the loan term, and Sacco loans can be fixed interest rates.

Read Also: How To Know It Is Time to Change Your Sacco

When Your Co-Signer Or Guarantor Is A Member Of Your Sacco

Having a co-signer or guarantor is often crucial for loan approval, particularly for individuals with limited credit history or those deemed higher risk by lenders. Lenders view co-signers as additional security, reducing the risk associated with lending to borrowers with less established credit profiles. They can improve the borrower's creditworthiness and come in handy when the borrower has insufficient income or collateral to qualify for a certain amount. 

Both banks and Saccos accept guarantors. However, Saccos typically fosters strong community ties among its members, creating a conducive environment for mutual support and cooperation. As a result, members are more willing to vouch for one another and act as co-signers, knowing that their involvement benefits the entire Sacco. 

On the other hand, banks have a more stringent requirement on who can be your guarantor. For instance, banks may require your consigner to have a high credit score, put collateral, and have a low debt-to-income ratio (DTI)

It is important to note that your Saccos members won't readily accept to be your guarantor. Therefore, consider choosing a Sacco where you have existing connections or where your friends and family are members. Additionally, cultivate strong relationships within your Sacco by building trust with members, as this will increase the likelihood of finding a willing co-signer should you need one.

Read Also: What to Do if You Can't Find Guarantors for Your Sacco Loan

When You Don't Have a Collateral Your Bank Will Accept

Banks typically require tangible assets, such as real estate, vehicles, or valuable possessions, as collateral for loans. These assets serve as security for the lender if the borrower defaults on the loan. Saccos, on the other hand, may accept a broader range of collateral options apart from tangible assets, including:

  • Savings Deposits: Sacco members can use their savings deposits as loan collateral. Since Saccos prioritise member savings and operates on a cooperative model, they may offer loans of up to three times the member's savings balance. Banks will allow you to borrow against your fixed deposit savings but not more than your outstanding balance. 
  • Personal Guarantees: In cases where members lack sufficient savings or shares, Saccos may accept personal guarantees from trusted individuals (who are also Sacco members) willing to assume responsibility for loan repayment if the borrower defaults.

This flexibility in collateral requirements allows Saccos to extend credit to individuals who may not have traditional collateral but have demonstrated financial responsibility through their savings and membership contributions.

When You Have A Poor Credit History

If you've experienced financial challenges that have resulted in poor credit ratings or have no credit history, seeking a loan from traditional banks can be daunting. 

Banks often impose strict minimum credit score requirements as part of their risk assessment process and use your credit ratings to decide how much to lend you and the terms of your loan. 

In contrast, Saccos typically have lower thresholds. They place greater emphasis on personal relationships, financial behaviour (regular contributions), and community support (getting a guarantor with the Sacco) when evaluating loan applicants.

Saccos often operate within tight-knit communities where members often know each other or have something in common, e.g., work for the same employer. This can foster an environment of trust and understanding where credit score/history isn't prioritised. However, if you had previously taken a Sacco loan and proved to be a bad borrower, you will struggle to find guarantors within your Sacco, and your future loan terms may not be as lenient. 

When You Require A Quick Approval Process 

Saccos are renowned for their efficiency and prompt loan approval timelines, offering a hassle-free borrowing experience compared to traditional banks. Most Saccos even offer specialised emergency loans, such as school or medical fees loans, which can be approved within 24 hours of application. 

Saccos employ streamlined processes and decentralised decision-making structures, prioritising efficiency and member satisfaction. This enables them to expedite loan approvals for their members. On the other hand, loan approval timelines can be considerably longer in banks due to bureaucratic processes, multiple layers of approval, and stringent verification requirements. 

While banks may demand extensive financial documentation, credit reports, proof of income, and collateral valuations, Saccos often keeps up-to-date financial paperwork of their members. As a result, they can process applications faster. 

When You Want A Flexible Repayment Term And Personalised Services

Saccos prioritises member-centric services and understands that one size does not fit all when it comes to borrowing. Banks often offer standardised repayment structures and may adhere to rigid lending policies and procedures, offering predetermined loan products with fixed terms and conditions. 

In contrast, Saccos provides flexible repayment terms that can be customised based on members' unique financial situations and preferences. This flexibility may include options such as:

  • Variable Loan Tenures: Saccos offer a range of loan tenures to accommodate members' diverse needs, allowing borrowers to choose repayment periods that align with their financial capabilities and objectives.
  • Tailored Payment Schedules: Saccos work closely with members to establish payment schedules that suit their cash flow and income cycles, ensuring that repayments are manageable and sustainable over time. 
  • Flexible Interest Rates: Some Saccos offer adjustable interest rates or personalised rate structures, enabling members to benefit from competitive rates that reflect their creditworthiness and financial circumstances.
  • Loan Restructuring Options: Saccos may offer loan restructuring or refinancing options to members needing more cash or experiencing financial hardships, such as top-up loans and buy-off loans, providing alternatives to help them manage their debt obligations effectively.

Read Also: The 10 Unhealthy Debt Practices You Should Avoid


Determining whether Sacco or bank loans are the better option hinges on thoroughly understanding your borrowing needs and priorities. Start by identifying the key features that matter most when borrowing money. By doing this, you can effectively evaluate which institution aligns best with your requirements. 

Whether it's the flexibility of repayment terms, personalised service, or competitive interest rates, making a prioritised list of criteria will guide you toward the most suitable choice. Ultimately, deciding between a Sacco and a bank loan depends on your circumstances and goals. So, take the time to assess your options carefully, and may your chosen path lead you toward financial empowerment and success.

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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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