Understanding the Real Cost of Obtaining a Loan in Kenya
When considering an investment , it's crucial to delve beyond the surface interest rate disclosed by banks. In Kenya, while the current capped interest rate for bank loans stands at 13.98 per cent (as of September 2023), there's a cluster of hidden expenses that significantly contribute to the overall cost, often overlooked by borrowers. Here's a comprehensive breakdown of five essential charges that investors should be aware of: Government Taxes: Banks impose exercise taxes on loan charges, typically at a rate of 20 per cent. For instance, on bank fees ranging between Ksh20,000 to Ksh40,000, an additional excise charge of Ksh4,000 to Ksh8,000 per loan application applies. These hidden taxes considerably augment the initial interest rate. Loan Application/Processing Fees: These encompass various charges like appraisal, negotiation, and loan arrangement fees. While some banks subtract these fees from the loan amount, others demand upfront payment from the borrower.