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Sacco loans Versus Bank loans
Rank: Member Joined: 2/20/2007 Posts: 767
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The only person for whom sacco loan makes sense is the guy in business, with no collateral therefore cannot access a bank loan. I think that person will be well served by an expensive sacco loan since they cannot access a regular loan. For the other people ( salaried / collateralise with stable income), just plan your finances, save regurlarly in a money market fund , borrow prudently and you will be miles ahead of your sacco compatriots. Infact, saving in a sacco puts you at a disadvantage in 2 ways, exposure of your funds to guarantees who can go AWOL on you and in the event you need money for an emergency, your sacco savings may not be available even if the cash you need is less or equal to your savings. You are forced to take a loan. With savings in a moneymarket fund, you have access at anytime. You can stem an emergency without taking a loan. Only downside is yourself and your self control. They must find it difficult....... those who have taken authority as the truth, rather than truth as the authority. -G. Massey.
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Rank: Elder Joined: 3/18/2011 Posts: 12,069 Location: Kianjokoma
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Who are these guys who rush to save 333k so that they can get 1M loan? Why don't they likewise save to 1M? Those ones will need bank loans even for such 'small' amounts. You just join a SACCO early enough, even before you visualize what you want to do when on first job. By the time you take the loan, it could be years!
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Rank: Member Joined: 2/20/2007 Posts: 767
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Lolest! wrote:Who are these guys who rush to save 333k so that they can get 1M loan? Why don't they likewise save to 1M?
Those ones will need bank loans even for such 'small' amounts.
You just join a SACCO early enough, even before you visualize what you want to do when on first job. By the time you take the loan, it could be years! So, you join a sacco for the sake of it. Coz jobo kuna sacco and ' everyone' is in it. Then I believe these arguements are not for you. The whole purpose of the analogies is to answer the question, "Is a sacco loan cheaper than a bank loan?" I dont know who joins a sacco just to save into perpetuity. And even if this was the case, please build a case showing how saving in a sacco gives better cash returns than other modalities available, not just feel good returns. They must find it difficult....... those who have taken authority as the truth, rather than truth as the authority. -G. Massey.
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Rank: Elder Joined: 3/18/2011 Posts: 12,069 Location: Kianjokoma
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tom_boy wrote:Lolest! wrote:Who are these guys who rush to save 333k so that they can get 1M loan? Why don't they likewise save to 1M?
Those ones will need bank loans even for such 'small' amounts.
You just join a SACCO early enough, even before you visualize what you want to do when on first job. By the time you take the loan, it could be years! So, you join a sacco for the sake of it. Coz jobo kuna sacco and ' everyone' is in it. Then I believe these arguements are not for you. The whole purpose of the analogies is to answer the question, "Is a sacco loan cheaper than a bank loan?" I dont know who joins a sacco just to save into perpetuity. And even if this was the case, please build a case showing how saving in a sacco gives better cash returns than other modalities available, not just feel good returns. I just don't get it why someone will join a SACCO to take a loan 6 months later. It means this dude will have saved 55.5K every month Let them take a bank loan, I agree
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Rank: Elder Joined: 3/18/2011 Posts: 12,069 Location: Kianjokoma
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Swenani wrote:tom_boy wrote:hindsight wrote:Swenani wrote:kasibitta wrote:Swenani wrote:bird_man wrote:The optimist wrote:Let’s take a Case of Ksh 1Million Loan
To qualify to borrow this amount I need to have raised 1/3 of the same of course with a guarantee of other members to get the remaining 2/3rd covered.
I'll be happy to say that I have secured a 1M loan from my Sacco at 12% interest per annum (Or 1% per month as they normally put it).
This of course boils down to a repayment of ksh 21,935.69 for five years.
For purposes of clarity
Loan: Ksh 1Million
Interest rate: 12% Pa on reducing
Period: 5 years(60 months)
monthly repayment: Ksh 21,935.69
Reality is shocking!
You have actually borrowed your own money at exorbitant rates!
Let's look at the argument again.
To qualify for a ksh 1M loan, you need to raise 1/3 that amount ie: Ksh 333,333 to be precise.
In that case the real money you have borrowed from your Sweet Sacco is Ksh 1m – 333,333 which is Ksh 666,666.67 with a repayment of Ksh 21,936 per month for five years.
Let’s see how much the interest will be for the second scenario(Reality).
Loan: Ksh 666,666.67
Interest rate:35.664% on reducing
Period:5 years(60 months)
Monthly repayments:21,935.69
Now we say Banks are expensive at 21% etc.
Who is more expensive?
Your Sacco or your Bank?
If you went to your bank with a payslip that can pay 22k per month...assuming your net after major expenses is 30k.What loan amount do you think they would give you?1M unsecured?I highly doubt_ Why not, a loan of Kshs 1M translates to a monthly repayment of 25K at a rate of 18% over 5 years
Also note that the 333,333sh will earn you close to 100k in dividends over the 5yrs if rate is 6%.-- Please note that you would also end up paying kshs 111,507 over 5 years in interest on your money of Kshs 333,3333 to the sacco! and your inevestment(whatever you borrow the money) will also have grown and at end of day, you still have a saving. Lets see who is better off after 5 years, assuming 10% ROI If you borrow 666,667 from the bank and top up with your savings of Kshs 333,333, you will end up paying kshs 349,013 in interest assuming 18% interest In 5 years, your total net worth will be(assuming 10% ROI annual compounding) 1,610,510-666,667-349,013=Kshs 594,830 If you go the sacco way and borrow kshs 666,667 you will end up paying kshs 334,667 in interest at 12%(interest is charged to Kshs 666,667 you borrowed+kshs 333,333your savings). At the end of 5 years , your total net worth will be ((assuming 10% ROI annual compounding on loan and 6% on your shares compounding) 1. Loan= 1,610,510-1,000,000-334,667=kshs 275,843 2. Growth of your shares due to dividends paid at 6% compounding 333,333*1.06^5=446,074 Total net worth=446074+275843=721,917 The Sacco guy is better off than the bank guy with kshs 127,087 after 5 years @Swenani, thanks for great analogy above. Bottom line the Sacco have bridged the gap of those who don't have collateral in terms of the "real" assets such as Land,Bonds,Shares etc to access the traditional Bank Loans that impoverished many who couldn't leverage them well. While saccos have come to the rescue, it's telling though that many loans from saccos have been God sent to "Small-Mid Level Creditors Bracket" who want to leverage their savings over time. In Investment world ,Time is money.Hence high net individuals still leverage bank loans /overdrafts/"sharks-Platinum Credit & Like" as they look at opportunity cost lost due to time.They leverage quick money by making use of it immediately and make a killing (ROI) that can pay back the high interest rates. On the downside they know if the investment doesn't work out they can live with it,even if the security charged was auctioned/lost. My take, if you can leverage Sacco Loans ,they are very good for increasing your "net worth " slowly but surely. While bank/other loans allows you increase your "net worth" 'overnight' though it works for those who have been there done it and have good fall back. Hence, Make it (Via Sacco), Master it (Via Sacco/Bank) Then It can Matter (Any Credit)! Disclaimer; Know your risk appetite first. @ Swenani, your analogy is flawed, The sacco guy will be paying shs 22,244 per month for a 1 miilion loan at 12% for 5 yrs. The bank loan guy will be paying shs 16,929 per month for a sh 666,667 loan at 18% for 5 yrs. The bank loan guy can invest the difference of sh 5315 at 10% which when added monthly to the 1 million available (333,333 savings + 666667 loan) will amount to 2,020,667 which minus repayed loan of 1,015,680 (666,667 principal + 349,013 interest) , you are left with 1,004,987. Who is smarter now? Yeah, I have noted If you factor in the savings of 5,315 invested at 10%, this will yield kshs 411,578 at the end of 5 years Hence the bank guy's Net worth will be (411,578+594,830)=1,006,408 while the Sacco guy's net worth will be 721,917. The bank guy is better off after 5 years than the sacco guy with Kshs 284,491. You do not take a loan on your savings(333K). It is just a security! It's still your money after you finish the loan!
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Rank: User Joined: 8/15/2013 Posts: 13,236 Location: Vacuum
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Lolest! wrote:Swenani wrote:tom_boy wrote:hindsight wrote:Swenani wrote:kasibitta wrote:Swenani wrote:bird_man wrote:The optimist wrote:Let’s take a Case of Ksh 1Million Loan
To qualify to borrow this amount I need to have raised 1/3 of the same of course with a guarantee of other members to get the remaining 2/3rd covered.
I'll be happy to say that I have secured a 1M loan from my Sacco at 12% interest per annum (Or 1% per month as they normally put it).
This of course boils down to a repayment of ksh 21,935.69 for five years.
For purposes of clarity
Loan: Ksh 1Million
Interest rate: 12% Pa on reducing
Period: 5 years(60 months)
monthly repayment: Ksh 21,935.69
Reality is shocking!
You have actually borrowed your own money at exorbitant rates!
Let's look at the argument again.
To qualify for a ksh 1M loan, you need to raise 1/3 that amount ie: Ksh 333,333 to be precise.
In that case the real money you have borrowed from your Sweet Sacco is Ksh 1m – 333,333 which is Ksh 666,666.67 with a repayment of Ksh 21,936 per month for five years.
Let’s see how much the interest will be for the second scenario(Reality).
Loan: Ksh 666,666.67
Interest rate:35.664% on reducing
Period:5 years(60 months)
Monthly repayments:21,935.69
Now we say Banks are expensive at 21% etc.
Who is more expensive?
Your Sacco or your Bank?
If you went to your bank with a payslip that can pay 22k per month...assuming your net after major expenses is 30k.What loan amount do you think they would give you?1M unsecured?I highly doubt_ Why not, a loan of Kshs 1M translates to a monthly repayment of 25K at a rate of 18% over 5 years
Also note that the 333,333sh will earn you close to 100k in dividends over the 5yrs if rate is 6%.-- Please note that you would also end up paying kshs 111,507 over 5 years in interest on your money of Kshs 333,3333 to the sacco! and your inevestment(whatever you borrow the money) will also have grown and at end of day, you still have a saving. Lets see who is better off after 5 years, assuming 10% ROI If you borrow 666,667 from the bank and top up with your savings of Kshs 333,333, you will end up paying kshs 349,013 in interest assuming 18% interest In 5 years, your total net worth will be(assuming 10% ROI annual compounding) 1,610,510-666,667-349,013=Kshs 594,830 If you go the sacco way and borrow kshs 666,667 you will end up paying kshs 334,667 in interest at 12%(interest is charged to Kshs 666,667 you borrowed+kshs 333,333your savings). At the end of 5 years , your total net worth will be ((assuming 10% ROI annual compounding on loan and 6% on your shares compounding) 1. Loan= 1,610,510-1,000,000-334,667=kshs 275,843 2. Growth of your shares due to dividends paid at 6% compounding 333,333*1.06^5=446,074 Total net worth=446074+275843=721,917 The Sacco guy is better off than the bank guy with kshs 127,087 after 5 years @Swenani, thanks for great analogy above. Bottom line the Sacco have bridged the gap of those who don't have collateral in terms of the "real" assets such as Land,Bonds,Shares etc to access the traditional Bank Loans that impoverished many who couldn't leverage them well. While saccos have come to the rescue, it's telling though that many loans from saccos have been God sent to "Small-Mid Level Creditors Bracket" who want to leverage their savings over time. In Investment world ,Time is money.Hence high net individuals still leverage bank loans /overdrafts/"sharks-Platinum Credit & Like" as they look at opportunity cost lost due to time.They leverage quick money by making use of it immediately and make a killing (ROI) that can pay back the high interest rates. On the downside they know if the investment doesn't work out they can live with it,even if the security charged was auctioned/lost. My take, if you can leverage Sacco Loans ,they are very good for increasing your "net worth " slowly but surely. While bank/other loans allows you increase your "net worth" 'overnight' though it works for those who have been there done it and have good fall back. Hence, Make it (Via Sacco), Master it (Via Sacco/Bank) Then It can Matter (Any Credit)! Disclaimer; Know your risk appetite first. @ Swenani, your analogy is flawed, The sacco guy will be paying shs 22,244 per month for a 1 miilion loan at 12% for 5 yrs. The bank loan guy will be paying shs 16,929 per month for a sh 666,667 loan at 18% for 5 yrs. The bank loan guy can invest the difference of sh 5315 at 10% which when added monthly to the 1 million available (333,333 savings + 666667 loan) will amount to 2,020,667 which minus repayed loan of 1,015,680 (666,667 principal + 349,013 interest) , you are left with 1,004,987. Who is smarter now? Yeah, I have noted If you factor in the savings of 5,315 invested at 10%, this will yield kshs 411,578 at the end of 5 years Hence the bank guy's Net worth will be (411,578+594,830)=1,006,408 while the Sacco guy's net worth will be 721,917. The bank guy is better off after 5 years than the sacco guy with Kshs 284,491. You do not take a loan on your savings(333K). It is just a security! It's still your money after you finish the loan! All that has been considered in the revised calculation above. The thing is, if you have savings of 333K in a sacco and you have a project of Kshs 1 million, you will have to borrow 1 million from the sacco ad pay interest on it(1M) unlike a guy who has savings of 333k in a bank will only need a loan of Kshs 667K If Obiero did it, Who Am I?
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Rank: Member Joined: 6/14/2010 Posts: 520 Location: Nairobi
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Swenani wrote:
All that has been considered in the revised calculation above.
The thing is, if you have savings of 333K in a sacco and you have a project of Kshs 1 million, you will have to borrow 1 million from the sacco ad pay interest on it(1M) unlike a guy who has savings of 333k in a bank will only need a loan of Kshs 667K
Exactly my point.
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Rank: Elder Joined: 3/18/2011 Posts: 12,069 Location: Kianjokoma
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Swenani wrote:
All that has been considered in the revised calculation above.
The thing is, if you have savings of 333K in a sacco and you have a project of Kshs 1 million, you will have to borrow 1 million from the sacco ad pay interest on it(1M) unlike a guy who has savings of 333k in a bank will only need a loan of Kshs 667K
That's fine. But in your co,mparative analysis, you subtract the savings amount which is wrong IMO Quote:At the end of 5 years , your total net worth will be ((assuming 10% ROI annual compounding on loan and 6% on your shares compounding)
1. Loan= 1,610,510-1,000,000-334,667=kshs 275,843
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Rank: User Joined: 8/15/2013 Posts: 13,236 Location: Vacuum
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Lolest! wrote:Swenani wrote:
All that has been considered in the revised calculation above.
The thing is, if you have savings of 333K in a sacco and you have a project of Kshs 1 million, you will have to borrow 1 million from the sacco ad pay interest on it(1M) unlike a guy who has savings of 333k in a bank will only need a loan of Kshs 667K
That's fine. But in your co,mparative analysis, you subtract the savings amount which is wrong IMO Quote:At the end of 5 years , your total net worth will be ((assuming 10% ROI annual compounding on loan and 6% on your shares compounding)
1. Loan= 1,610,510-1,000,000-334,667=kshs 275,843 1. I subtracted since you have to repay the loan in full. 2. I added back the savings and factored in growth in dividends Quote:2. Growth of your shares due to dividends paid at 6% compounding
333,333*1.06^5=446,074
Total net worth=446074+275843=721,91 If Obiero did it, Who Am I?
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Rank: Elder Joined: 3/18/2011 Posts: 12,069 Location: Kianjokoma
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Swenani wrote:Lolest! wrote:Swenani wrote:
All that has been considered in the revised calculation above.
The thing is, if you have savings of 333K in a sacco and you have a project of Kshs 1 million, you will have to borrow 1 million from the sacco ad pay interest on it(1M) unlike a guy who has savings of 333k in a bank will only need a loan of Kshs 667K
That's fine. But in your co,mparative analysis, you subtract the savings amount which is wrong IMO Quote:At the end of 5 years , your total net worth will be ((assuming 10% ROI annual compounding on loan and 6% on your shares compounding)
1. Loan= 1,610,510-1,000,000-334,667=kshs 275,843 1. I subtracted since you have to repay the loan in full. 2. I added back the savings and factored in growth in dividends Quote:2. Growth of your shares due to dividends paid at 6% compounding
333,333*1.06^5=446,074
Total net worth=446074+275843=721,91 At the end of it all, you assume that the SACCO guy's deposits have gone down to 113K. After he has paid the loan? Subtracting the savings and then adding them back gives us a net value of zero
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Rank: User Joined: 8/15/2013 Posts: 13,236 Location: Vacuum
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Lolest! wrote:Swenani wrote:Lolest! wrote:Swenani wrote:
All that has been considered in the revised calculation above.
The thing is, if you have savings of 333K in a sacco and you have a project of Kshs 1 million, you will have to borrow 1 million from the sacco ad pay interest on it(1M) unlike a guy who has savings of 333k in a bank will only need a loan of Kshs 667K
That's fine. But in your co,mparative analysis, you subtract the savings amount which is wrong IMO Quote:At the end of 5 years , your total net worth will be ((assuming 10% ROI annual compounding on loan and 6% on your shares compounding)
1. Loan= 1,610,510-1,000,000-334,667=kshs 275,843 1. I subtracted since you have to repay the loan in full. 2. I added back the savings and factored in growth in dividends Quote:2. Growth of your shares due to dividends paid at 6% compounding
333,333*1.06^5=446,074
Total net worth=446074+275843=721,91 At the end of it all, you assume that the SACCO guy's deposits have gone down to 113K. After he has paid the loan? Subtracting the savings and then adding them back gives us a net value of zero- Wewe ulisomea kwa dirisha? If you take a loan of 1M(667K+333k) and pay an interest of 12% while your savings(333k) is earning 6% in dividends, you do not end up with a net value of zero The sacco guys 333K savings have grown to 446K assuming a return of 6% The 275K is the return on the loan of 1M over a period of 5 years. So where has the the sacco guys deposit gone down by 113K? If Obiero did it, Who Am I?
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Rank: Veteran Joined: 5/18/2008 Posts: 796
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I remember this discussion from way back when...http://m.wazua.co.ke/forum.aspx?g=posts&t=1109 Here is what I got. Have I left out any relevant factors  Edited slightly
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Rank: Member Joined: 2/20/2007 Posts: 767
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mozenrat wrote:I remember this discussion from way back when...http://m.wazua.co.ke/forum.aspx?g=posts&t=1109 Here is what I got. Have I left out any relevant factors Edited slightly Good one. One small omission, the bank guy is paying shs 16,027 LESS per month. If you invest this cash at 9%, you will have shs 961,620 as cash savings and interest of shs 244,579. Total 1,206,199. Practically, the bank guy can choose to use the excess cash each month to pay off the loan faster thus pay much less interest, pay it off earlier by 18 months and save the intended loan repayments at interest. They must find it difficult....... those who have taken authority as the truth, rather than truth as the authority. -G. Massey.
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Rank: Veteran Joined: 5/18/2008 Posts: 796
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tom_boy wrote:mozenrat wrote:I remember this discussion from way back when...http://m.wazua.co.ke/forum.aspx?g=posts&t=1109 Here is what I got. Have I left out any relevant factors Edited slightly Good one. One small omission, the bank guy is paying shs 16,027 LESS per month. If you invest this cash at 9%, you will have shs 961,620 as cash savings and interest of shs 244,579. Total 1,206,199. Practically, the bank guy can choose to use the excess cash each month to pay off the loan faster thus pay much less interest, pay it off earlier by 18 months and save the intended loan repayments at interest. I didn't ignore the interest on the 16,027. It is included as 245,960.85. However, if I have to consider the 961K like you have, I would also have to consider the 1m initial deposit that the Sacco guy put into the Sacco. so I ignored both and considered only the incremental amounts i.e. the interest earned by the bank guy on the difference between the installments and the interest earned by the Sacco guy on the initial deposit only.
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Rank: Member Joined: 2/20/2007 Posts: 767
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mozenrat wrote:tom_boy wrote:mozenrat wrote:I remember this discussion from way back when...http://m.wazua.co.ke/forum.aspx?g=posts&t=1109 Here is what I got. Have I left out any relevant factors Edited slightly Good one. One small omission, the bank guy is paying shs 16,027 LESS per month. If you invest this cash at 9%, you will have shs 961,620 as cash savings and interest of shs 244,579. Total 1,206,199. Practically, the bank guy can choose to use the excess cash each month to pay off the loan faster thus pay much less interest, pay it off earlier by 18 months and save the intended loan repayments at interest. I didn't ignore the interest on the 16,027. It is included as 245,960.85. However, if I have to consider the 961K like you have, I would also have to consider the 1m initial deposit that the Sacco guy put into the Sacco. so I ignored both and considered only the incremental amounts i.e. the interest earned by the bank guy on the difference between the installments and the interest earned by the Sacco guy on the initial deposit only. Point taken. However , a more rational way of looking at it is that the bank guy will use all funds available to clear the loan first. Do the same calculation but assume each of them is paying the same amount each month. Let us know your findings. They must find it difficult....... those who have taken authority as the truth, rather than truth as the authority. -G. Massey.
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Rank: Hello Joined: 2/22/2013 Posts: 5
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Very confusing...in summary, which is "better"? Those who are unwilling to take risks do not change the world.
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Rank: New-farer Joined: 10/3/2014 Posts: 20
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tonieneri wrote:Very confusing...in summary, which is "better"? Assuming that the Bank might increase or decrease lending rates depending on the market dynamics, Sacco is better but the difference is not very significant.
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Rank: User Joined: 8/15/2013 Posts: 13,236 Location: Vacuum
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tonieneri wrote:Very confusing...in summary, which is "better"? For interest below 23% bank is better If Obiero did it, Who Am I?
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Rank: Hello Joined: 8/15/2019 Posts: 5
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For a couple of years, I was an unofficial employee and I couldn't apply for a bank loan. The bank loans are way better than the credit unions ones. They have lower interest rates. So I had to loan money from credit companies and pay for a year the same that I could pay for 3 if loaning from the bank. After becoming an official employee, I couldn't miss the chance to loan money from banks so I applied a few times on Lånemegleren. As soon as I return one loan, I take another. Most of all I applied for consumers loan as they allow you to spend the money however you want. And having a good credit history allowed me to get better offers.
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