There are instances in life whereby one may experience delayed progression largely occasioned by limited finances.
Be it either medical bills, pursuit of higher education, development projects or simply self-gratification, having sufficient funds to cater to such needs is vital towards an individual’s overall sanity.
Fortunately, the availability of credit institutions nullify the issue of lack of capital as a hindrance factor towards certain accomplishments.
In Kenya for example, there are several avenues whereby one can source for financing ranging from digital loans, banks, microfinances, saccos, shylocks etc depending on the term limits i.e short term or long term
However, such funding sources usually bear the attributes of a ‘double-edge sword’ and as such due diligence must be equipped before settling on either of the choices availed at one’s disposal.
In this regard, we will focus on providing an answer to one one of the most sought out queries i.e should one go for a sacco loan or bank loan?
Should I go for a sacco loan or bank loan?
By definition both a sacco and bank undertake similar functions in that they simultaneously receive deposits while also disbursing loans to creditworthy individual(s) or institutions.
On the other hand, their contrasts lie within their respective regulatory bodies whereby the Central Bank of Kenya (CBK) governs the 42+ licensed banks in Kenya while the 100+ saccos fall under regulation of Sacco Societies Regulatory Authority (SASRA)
Besides the above, other differences that come into play revolve around the various products and services offered by either of the establishments.
Therefore basing our focus on the available loan options, the differences are largely dependent upon personal preferential choices based on the factors highlighted below.
As stated earlier, both banks and saccos exist so as to provide credit facilities.
However, sacco loans are generally considered easier to get in terms of their overall application processes which only require signatories in the form of guarantors while bank loans are tedious and require numerous documentation.
Another aspect of accessibility touches on the customer base of each whereby saccos attend to all including the unemployed while banks are usually biased towards the salaried individuals.
2. Loan Limit
Loan limit refers to the maximum amount an applicant can receive subject to loan approval.
For sacco loans, loan limits are dependent on a member’s share deposits whereby loans granted can be 3 or 4 times a member’s deposits implying that to borrow more, one needs to save more.
On the other hand, bank loans are issued on a net salary basis whereby the higher the net salary, the higher the loan amount at one’s disposal.
These are mandatory deductions imposed during loan applications and implemented upon loan disbursements.
Sacco loans usually have less fee deductions compared to bank loans which have a variety including processing fees, negotiation fees, excise duty, valuation fees, legal fees etc
4. Interest rates
This refers to the percentage rate of return charged on the principal loan amount.
Sacco loans have a fixed interest rate and are not subject to prevailing market conditions as compared to bank loan interest rates which are dynamic depending on external factors such as inflation rate.
A collateral is a personal asset issued to a lender as a form of security to guard against loss in the event of default.
The collateral can be in various forms including title deeds, logbooks, shares in fixed accounts etc
Sacco loans use guarantorship as a form of security whereby loans require signatories who pledge to repay the loan on behalf of the loaned member in the event of default.
In other circumstances, sacco members can self-guarantee loans if they have sufficient deposits to cover a certain percentage of the loan amount.
Bank loans on the other hand, are dependent on the type of loan i.e secured/unsecured whereby the former requires collateral while the latter does not and usually requires a written agreement/M.O.U between an employer and the bank.
This refers to the minimum set of requirements that have to be met before one can be able to make a loan application.
Depending on the type of sacco loan, an applicant may be required to have held an active account with the sacco for a certain amount of duration e.g 3-6 months whereas bank loans are pegged on one’s ability to make repayment.
There you have it! 6 valid factors to consider when opting for a sacco loan or bank loan.