The main difference between SACCOs (Savings and Credit Co-Operative Society) and Banks is ownership. Saccos are member-driven, while banks are generally owned by investors. Therefore, Saccos are typically geared towards meeting the needs of members, rather than outright portability as a primary and sole goal.
Thus, in the recent past, banks have always set their interest rates at whatever level why wanted. They have been making money hand over fist, lending at their high-interest rates. This has fueled the rise in SACCOs in Kenya, as the preferred lender for many Kenyans taking on debt.
Here is why –
A Comparison Between Sacco And Banks Loans
Interest Rate
SACCOs tend to offer lower interest rates, which are calculated on a reducing balance basis. Banks, on the other hand, offer high-interest rates and most banks calculate on a straight-line basis.
An important thing to note about bank interest rates is that they can change during the tenure of your loan. If the interest rate on your isn’t fixed, a bank can reassess its lending rate based on economic fluctuations. This readjusts the interest rate issued against your loan without prior notice. Saccos however, are known to be consistent and stay true to their rate, come rain or sunshine.
Related: Flat Interest Rate vs Reducing Balance Rate, Which One Saves You Money?
Hidden Charges
Sacco loans do not attract hidden charges but bank loans do. Most bank loans are structured with additional feeds. They come along with insurance fees, appraisal/processing fees, legal fees, late remittance charges, premature loan clearance charges and more.
Loan Security
A take a loan from the Sacco, borrowers need a guarantor or be a member with shares to get a loan. Banks, however, only require you to have payslips and/or make regular deposits for business individuals. The payslip or regular deposits are considered your cash inflows as a security buffer by banks. Additionally offer difficult appraisal requirements, and often times you may lack the needed documentation.
Overall, SACCOs are more flexible and all you’ll need is to prove your ability to back the loan.
Credit Score
The credit score is a critical ingredient in assessing your risk assessment ergo your ability to repay. If you are listed in the CRB, just forget about getting a bank loan. However, you can still access loans through Saccos.
Loan Amount
SACCOs typically give loans according to how much you have saved, which limited how much you can actually borrow. That is, you can only borrow about 5x your savings for instance. Banks, on the other hand, do not have such limits, they offer high loan amounts to those they consider low-risk borrowers such as salaried and business individuals with regular deposits.
Additionally, with Saccos you can access multiple loans running concurrently. While with banks you only have the option to Top up your current loan, thereby serious hindering you from getting better terms.
Related: Is the Bank A Place to Save Money?
Repayment Period
SACCOs provide short repayment periods for their loans, while banks offer longer repayment periods for their loans.
Summary: Which Is Better?
What may seem like a disadvantage for Sacco loans, may be an advantage for Bank loans. Saccos are great but they have their fair share of limits. If you are an established business or salaried individual that seeks to borrow a sizable amount, bank loans may be the way to go. Therefore, when it comes to Sacco and bank loans and which is better, it solely depends on you, the borrower and your intent. Choose wisely!
Image credits: Top by Antony Trivet via Pexels.
