With a Ksh52K Net Salary, Is It a Good Idea to Take a New Ksh6M Loan and Invest It? Money254 Cash Clinic

Hi,

I’m currently employed in Kenya and earn a monthly salary of Ksh150,000. Out of this, I am repaying a bank loan of Ksh3.1 million, which leaves me with a take-home pay of about Ksh52,000 after all deductions.

I’m considering taking out a new long-term loan of Ksh6 million to completely pay off the existing loan and then invest the remaining amount in a Money Market Fund (MMF) to earn a monthly return.

Would this be a financially wise decision, given the interest rates on long-term loans versus the returns from MMFs in Kenya?

John, Gachie.

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Hi John,

The first question to consider is whether the loan is earning interest at a rate lower than what Money Market Funds (MMFs) in Kenya offer. MMFs typically yield 8%–11% p.a., while long-term loans may cost 13%–15% p.a., making borrowing for investment in MMFs likely unviable.

If you're already taking home Ksh52,000, a larger loan would further reduce your net income—is that something you're comfortable with?

Keep in mind:

• A longer loan term means lower monthly repayments, but higher total interest over time.
  
  
• Refinancing only makes sense if it reduces your financial burden and saves on interest.
  
  

You might want to focus on repaying your existing loan first, especially if you can secure a lower interest rate. Once debt-free, you can consider investing in MMFs or other assets for real returns, rather than working just to service debt.

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