Generally, you need about Ksh 1-5 million to buy a decent new car in Kenya, and frankly speaking, not many can afford that. So, most of them are only left with the option of searching for the best car loans in Kenya as a financing option.
Auto loans promise 50-100% financing, depending on the lender, and they are offered by banks, SACCOs, car dealers, and microfinance institutions. Hence, the options can be overwhelming.
The question, however, is, ‘Should you go for car loans?’ Are auto loans worth it?
Well, as much as auto loans allow you to start owning a car you ordinarily won’t afford, there are a few catches. That includes joint ownership, down payments, regular payments, and interests, which you should consider before getting these loans.
This article will help you understand car loans or auto loans better. Here’s what you can look forward to learning:
- What are car loans?
- What should you know about car loans?
- Who offers car loans in Kenya?
- What are the pros and cons of car loans?
- Are car loans worth it?
- If not car loans, then what?
Let’s jump in!
In a hurry? Below is an overview of the most popular car loan lenders and their offers.
Leading Car Financing Companies In Kenya
|–||Financing Company||Loan Amount||Interest Rate||Payment Term|
|1.||Absa Bank||Up to 95% financing||13% per annum||Up to 6 years|
|2.||KCB Bank||Up to your security’s maximum value||13% per annum||Up to 6 years|
|3.||National Bank||100% Financing||13% per annum||Up to 5 years|
|4.||Stanbic Bank||Up to 80% financing||14.5% per annum||Up to 5 years|
|5.||I&M Bank||Up to 80% financing||13% per annum||Up to 5 years|
|6.||COOP Bank||Up to 100% financing||13% per annum||Up to 5 years|
|7.||Family Bank||Up to 80% financing||13% per annum||Up to 4 years|
|8.||NCBA Bank||Up to 80% financing||13% per annum||Up to 5 years|
|9.||Standard Chartered||Up to Ksh 10 million||13% per annum||Up to 5 years|
|10.||Umba Kenya||Up to 70% financing||2.49% per month||Up to 3 years|
|11.||Platinum Credit||Up to 75% financing||2.25% per month||Up to 3 years|
|12.||Kifedha Credit||Up to 50% financing||5% per month||Up to 24 months|
|13.||Mogo||Up to 75% financing||2.1 – 2.6% per month||Up to 5 years|
|14.||Ngao Credit||Up to 50% financing||3.5% per month||Up to 3 years|
|15.||MyCredit||Up to 60% financing||4.5% per month||Up to 2 years|
|16.||Mwananchi Credit||Up to 50% financing||6% per month||Up to 3 years|
|17.||Watu Gari||Up to 80% financing||2.5% per month||Up to 5 years|
|18.||Hakki Africa||Up to 80% financing||2.57% per month||Up to 4 years|
What Are Car Loans?
Car loans, also known as auto loans or automobile loans, are money borrowed to buy a car. The car could be new or used.
Auto loans attract interest over the period they are payable. Some lenders offer up to 100% financing (which means you don’t have to deposit), while others only cover up to a certain percentage of the car’s market value.
Note that auto loans differ from car logbook loans in Kenya, where you must first own a car and put its logbook as security to get a loan.
What to Know About Car Loans In Kenya?
Before getting a car loan, it’s essential to understand what you are getting yourself into. Here is the most important one.
Not All Lenders Offer 100% Financing – You May Need to Make a Down Payment
As you can see from the table shared above, most lenders do not provide 100% financing. They only offer up to a certain percentage of the car’s market value. That means you’ll need to make the initial deposit.
For example, lenders like Stanbic Bank, I&M Bank, Family Bank, and NCBA Bank only offer up to 80% of the car’s market value, which means you’ve to raise the 20%.
Let’s say you want to buy a car worth Ksh 1 million on loan and approach any of these lenders. The most they can offer you is Ksh 800,000, meaning you’ve to raise Ksh 200,000.
Car Loans Attract Interest
Car loans like small business loans attract interest, and the interest rate may be per month or year, depending on the lender and the loan term.
For example, while most banks in Kenya charge an annual interest rate, most microfinance and car dealers charge monthly interest.
Car Loans Require Regular Payments
Once you pay the down payment and are granted the loan, you’ll be expected to pay a specific amount each month until you fully pay the loan plus interest.
Failure to make regular payments may have serious consequences, such as the lender repossessing the car.
You Are Only a Joint Owner Until You Fully Pay The Loan
Yes, a car loan allows you to buy a car, but that doesn’t give you an absolute right of ownership. You only enjoy joint ownership as long as you still owe the lender.
There Are Some Hidden Costs
Just because the lender promises 100% financing doesn’t mean you are not going to incur any cost. There are usually some hidden costs, such as insurance costs, processing fees, valuation fees, logbook discharge fees, car tracker, and installation costs, among others.
So, asking about these fees before applying for an auto loan is essential.
Who Offers Car Loans in Kenya?
Generally, you can get an auto loan from any of these lenders in Kenya:
1. Commercial Banks
Many banks in Kenya offer car loans to their qualified members. Banks generally offer up to 80 – 100% financing, and their loans are charged at an annual interest of 13-14.5%.
Here are the top considerations when searching for the best bank for car loan in Kenya:
- Absa Bank
- KCB Bank
- National Bank
- Stanbic Bank
- I&M Bank
- Co-operative Bank
- Family Bank
- NCBA Bank
- Standard Chartered Bank
- Umba Kenya (a digital bank originating from Nigeria)
You can refer to the table I shared earlier to see the offers from these lenders.
2. Microfinance Institutions
Microfinance institutions also offer car loans in Kenya to qualified persons. Unlike banks, these institutions mostly charge a monthly interest rate.
Overall, we’ve two microfinance institutions providing car loans in Kenya.
First, we’ve credit-only microfinance institutions that don’t accept deposits but offer credit services, and examples include:
- Ngao Credit
- Mwananchi Credit
- Jijenge Credit
- NorthWave Credit
On the other hand, we’ve deposit-taking microfinance (DTM) institutions that accept deposits while offering credit facilities.
- Faulu Kenya
- Rafiki Microfinance
- SMEP Microfinance
- Choice Microfinance
- Maisha Microfinance
3. Car Dealers
You can also get an auto loan from a car dealer in Kenya, and the options are as follows:
- Hakki Kenya
- Magari Capital
- General Motors Kenya
- Watu Gari
- Toyota Kenya
- Motorship Kenya
- Maridady Motors
You can get Ksh 500,000 – Ksh 20 million car loans from this dealership and have up to 5 years to repay it.
So many SACCOs also offer auto loans to their qualified members, and you can get up to Ksh 5 million to get your dream car. Unlike banks, however, SACCOs have stricter terms.
For example, most of their loans have a maximum of 48 months. So, you’ve to pay back your car loan within two years. Another thing is that their interest rates are a bit steep, and sometimes, you may need to provide security before qualifying for a car loan.
Pros and Cons of Car Loans
You can expect auto loans to have some advantages and disadvantages. Let’s look at them now:
Ideally, here are the notable advantages of car loans:
- Easy way to own a car – As I mentioned earlier, new cars don’t cost cheap. They are expensive. You can, however, buy one with a loan.
- Usually fast processing – Most lenders process the loan within days or weeks, allowing you to start driving as soon as possible. All you have to do is meet their minimum requirements.
- Up to 100% financing – Some lenders offer up to 100% car financing in Kenya, which means you don’t have to make any down payment other than paying a few fees.
Now, here are the concerns that come with car financing in Kenya:
- High charges – Auto loans are like every other loan. They attract interest, which you must pay over the loan term. These charges are high, given that most lenders charge 2 – 5% monthly.
- Fast car depreciation – The moment you drive your car out of the dealership, its value starts depreciating. The depreciation is so rapid that sometimes you struggle with maintenance and loan repayments simultaneously. You would rather deal with one.
- Hidden fees – These lenders usually have hidden fees they don’t tell you about until you get your loan. For example, most of them have processing fees, negotiation fees, valuation fees, car tracker charges, and logbook transfer/registration charges.
- Joint ownership – Buying a car on a loan doesn’t give you absolute ownership rights. As long as you are still paying for the loan, you co-own the vehicle with the lender, and they can repossess it if you fail to repay it.
- Car repossession – I’ve already mentioned this, but just so you may know, the lender can take back the car and sell it to recover some of the money they loaned you if you don’t comply with your payments. So, you may lose your car after paying for it for several months.
Is Buying a Car On Loan in Kenya Worth It?
Frankly, no loan is worth it as you’ve to pay it back. In fact, car loans are worse since the car depreciates from day one. That means you won’t get your money back even if you decide to sell the car tomorrow.
As shared above, car loans are too expensive to pay. They have higher interest and many hidden fees. In the long run, they’ll harm your budget and money goals.
What if you can’t pay?
Then, the lender will be forced to take action. It may mean repossessing the car or losing your security. Imagine losing a piece of your family land because of a car loan. It’s just not worth it!
If Not Car Financing, Then What?
Now that my argument is that you shouldn’t go for car loans in Kenya, you are likely to ask, what then when I need a car and can’t afford it now?
For starters, you can do without a car. It’s not a need but a luxury, an expensive one as such. And if you think you need it, then save up for it.
Yes, it may take time, but you can save up quicker if you find ways to inject more money into your pocket. Besides, you can also buy a used car if that’s what you can afford. If it’s in good condition and affordable, go for it.
As Cent Warrior, we can help you save up for your dream car, find a side hustle to create another income stream and get out of debt if you are already wallowing in it.
Visit our online store to find amazing goodies to help you attain such goals.