5 Tips to Help you Get the Best Car Loan in Kenya

There are many reasons why someone might need to buy a car. Perhaps you’ve just moved to a new city and need to move around easily, or the upgrade from a footsubishi is long overdue. Whatever your needs may be, finding the right car loan can make the process of buying a car much easier. A car loan is essentially an agreement between the borrower and the lender that the borrower will pay back a certain amount of money over a set period with interest.

If you are in the market for a new car but not sure how you’ll be able to afford it, you’ll want to research available financing options. Depending on your situation, preferences, and financial circumstances, you may have several financing options. As such, it’s important to understand all your financing options before making this important decision.

In this blog post, we will cover everything you need to know about the different types of car loans and which one is right for you.

What can I afford?

Before you head over to the lender, you need to assess how much you can afford. The best way to do this is to prepare your budget and assess how much of your income can go toward the loan payment.

A budget will help you assess your financial situation and see how much you can afford. Plus, the budget gives you an idea of how much money is left in your budget that can go toward your car loan repayment.

When preparing this budget, make sure you consider all the expenses that you incur. You must make sure you can save a portion of your income after you pay for the loan. The point is to ensure you don’t stop saving when you start paying back the loan.

After you review how much you can afford, you need to do your research on the best lenders. Here is what you should consider when applying for a car loan in Kenya.

car loan

Factors to Consider When Selecting an Auto Loan

Before you apply for a car loan, consider the following:

Interest rate

The interest rate is the cost of your loan. Auto loans with higher interest rates are more expensive. Compare the rates from different lenders and choose the one with the lowest interest rate.

It’s also important that you understand how the lender calculates the loan’s interest. In so doing, you will be able to review what the lender is offering, and you can choose the best. It’s best to use a car loan calculator to see the impact of different interest rates.

Cost of getting the loan

Start by considering the processing fees and other costs you will incur to get the loan. Lenders charge fees such as processing fees, origination fees, and insurance, among others. These costs are part of your loan and increase the cost of your loan.

Also, consider the prepayment fees you are likely to incur if you pay the loan in advance. Choose an auto loan that has minimal fees.

To get the exact cost of the loan, add the principal, interest, and fees the lender is charging. This gives you the total cost you will incur, and it enables you to compare the offers from different lenders. Getting the total gives you a bigger picture of how much the car will cost if you opt to buy it through car loan financing.

Loan tenure

 The longer the loan tenure, the higher the monthly repayment is likely to be. Consequently, the cost of the loan will also be higher. On the other hand, a shorter loan duration will reduce the cost of the loan, but you will need to pay higher monthly repayments.

You need to ensure the loan duration you choose works for you. Always opt for a shorter duration, as this reduces the cost of the loan. A car loan debt is not productive, so always opt for the shortest loan duration.

Don’t get tempted to buy an expensive car with a longer loan tenure, as this will increase the cost of the loan significantly. Take the shortest duration possible to pay off a car loan.

However, it’s important to ensure you can pay the loan without defaulting.

Loan-to-value ratio (LTV)

 Consider the proportion of your car’s value that the lender is willing to finance. Although some lenders may offer 100%, most of them will require you to raise 30% of the value. Whether the car is new, or second-hand also determines the LTV ratio the lender offers.

When selecting a car loan, choose one with a lower LTV.  This will reduce the amount of money you need to borrow and lower the cost of the loan.

Equated monthly payment (EMI)

Select a loan with an EMI you can afford. You don’t want a situation where the lender repossesses your car for failure to pay. Make sure you can comfortably pay the EMI without fail.

It’s recommended that your total debts should not exceed 40% of your income, including the auto loan. This will ensure you can comfortably pay your liabilities.

5 tips to help you get the best car loan deal

Before you get an auto loan, consider the following.

Compare the total car loan amount from various car loan lenders.

Don’t let the excitement of owning a car deny you the chance of getting the best. Make sure you compare the offers from different lenders. Use an auto loan calculator to determine the total amount you will pay back from each lender. This includes interest, fees, and principal.

Check how much you will pay at the end of the loan tenure. When checking the best car loan deal, check the principal, fees, and interest. Use that to select the lender with the best car loan financing deal.

Using a car loan calculator will help you narrow down the best option. Don’t look at the monthly repayments; instead, check the total cost from each lender. Compare and choose the best deal.

In summary, the total cost of the car loan includes the following:

  • Principal
  • Interest for the loan tenure
  • Fees and other charges
Check for other costs and read the fine print.

It’s important to make sure you check all the charges the lender will levy when you apply for a loan. These include processing fees, prepayment, and other costs, which increase the cost of the loan.

Additionally, ensure you read the terms and conditions of the loan. Make sure you understand the impact of defaulting and the penalties. Although most lenders will repossess your car for failure, choose one who is a bit lenient.

Before you approach the lender, make sure you have done your research and know the documents you need. Here are some of the things you are likely to need during the application process:

  • Proof of income such as pay slips or any document that shows you have an income
  • Savings account statement to show you can pay the deposit
  • Details of other loans you have, including credit cards
  • Bank statement for the last six months or more
  • Driving license
  • KRA pin
  • Credit bureau report
  • Proforma invoice from the car dealer showing the price of the car
  • Vehicle registration documents such as logbooks and import documents
  • Completed car loan application form
Check and improve your credit rating

Your credit score will determine whether a lender will approve your car loan application. It also determines the car loan interest rate you will get from the lender. Before you apply for a car loan, familiarize yourself with your credit rating.

If you have any overdue debts affecting your credit score, you will need to pay those off first. This will improve your credit score and make it easier for you to borrow.

Avoid taking up unnecessary car add ons

When borrowing to buy a car, you want to make sure you borrow the minimum. Avoid taking up unnecessary features and add-ons from car dealers, as this increases the cost of the car. You will need to borrow more to buy the car.

Buy a car you can afford

Don’t get tempted to buy an expensive car because the lender is offering to lend you the money. A car is a depreciating asset that will lose value in the next five years. That is why you should make it a point to pay off your car loan as soon as possible.

Buy a car you can afford to pay for in the shortest time possible. The longer the loan tenure, the more likely it is that you will be paying for a car with little or no value.

Although we all know how important a car is, make sure you get an auto loan that you can afford.

 Where to get a car loan in Kenya

Several lenders and dealers offer car loans in Kenya. Here is a summary of the best.

Banks

Here are the banks that offer car loan financing in Kenya.

BankThe amount for new carsThe amount for a used carInterest ratesFees and other costsLoan tenureType of loan 
Absa95% of the car value75% of the value of the car14% Up to 72 months for new cars and 48 months for used cars  
Co-op BankUp to 100% of the value of the carUp to 80% of the value of the car13% 5 to 8 years  
KCB Bank Up to 100% of the value of the car 14% Up to 72 monthsSecured 
I & M Bank80% of the value of the car   48 months  
National Bank100% for a new car 14% 60 months for a new car and 48 for a used car  
Equity Bank100%100%14% 120 months for a new car and 60 months for a used car  
Car dealership

Car dealers such as Toyota Kenya and Motor Hub Kenya offer car loans to help you own the car of your dreams. Use the auto loan calculator to check how viable the loan is before you sign up.

Savings and credit cooperative organizations (Saccos)

Saccos offer their members car loans at affordable rates. Unlike banks, you must have savings to access the loans. Here is a summary of some of the car loans you can get from Saccos.

SaccoThe amount for new carsThe amount for a used carInterest ratesFees and other costsLoan tenureType of loan
Waumini SaccoBased on your sharesBased on your shares14% on reducing the balance Up to 5 years 
Stima SaccoBased on your sharesBased on your shares12% -14% on reducing the balance 4-5 years 

Car loans can be a great way to finance your new car, but it’s important to do your research and shop around before you commit to any one loan. We hope our tips have helped you understand the process a little better and given you some ideas on how to get the best car loan for your needs. Do you have any other tips to share? Let us know in the comments below.

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