How Do You Know If You Can Afford a Loan? A Step By Step Guide
Hello MESHERS!
Leo we’re going to look at how could you assess yourself to know that you are ready for a business loan.
Juzi niliwaonyesha how to create a budget, kama ulimiss you can watch that video here ,and today I’ll show you how to find out if you can afford a loan tukitumia Sarah’s budget from hio video yetu.
Step 1. Look at your budget
In our budget video ,we calculated that Sarah had 1500KES left a week, which she could use to save, or to repay a loan.
Maybe she can find some extra doh. Ask yourself one question: Ni nini naeza change? Maybe you are spending too much on your salo and you feel that you can reduce the amount ama maybe kama Sarah who often uses boda bodas instead of matatus and this is costing her an additional 400 shillings a week.
In the next week, Sarah could target to add this to the savings going towards her Salon dream. So instead of saving 1500/ weekly,she can instead save 3500/ weekly. That is 14,000KES a month.
Transport Weekly amount current: 2000KES Weekly amount reduced: 1000KES Savings: 1000KES
Products - Hair oils & spray Weekly amount current: 1000KES Weekly amount reduced: 1000KES Savings: 0KES
Airtime & bundles Weekly amount current: 500KES Weekly amount reduced: 500KES Savings: 0KES
Personal Salary: Weekly amount current: 6000KES Weekly amount reduced: 5000KES Savings: 1000KES
Current Savings: 1500KES
Total savings: 3500KES
Step 2. Calculate the cost of the loan
We will use the example of a 100k loan charging 8.5% monthly.. Sarah will pay back 10,000KES per month plus 8.5% interest for ten months.
Ukichukua hii loan, this is how you can calculate your monthly payments for the next ten months, na hii ni critical step kwa sababu you need to have the numbers right ndio ujue kama you’ll afford the loan.
Here is what payments for Sarah would look like:
Month 1: 10,000 + 8.5% interest on her balance of KES 100,000. The interest is 8500.,T the total payment for month one would be = 18,500.
Month 2: 10,000 + 8.5% interest on her balance of KES 90,000 7650 = 17,650
Month 3: 10,000 + (8.5% interest on her balance of KES 80,000) = 16,800
Month 4: 10,000 + (8.5% interest on her balance of KES 70,000) = 15,950
Month 5: 10,000 + (8.5% interest on her balance of KES 60,000) = 15,100
Month 6: 10,000 + (8.5% interest on her balance of KES 50,000) = 14,250
Month 7: 10,000 + (8.5% interest on her balance of KES 40,000) = 13,400
Month 8: 10,0080 + (8.5%interest on her balance of KES 30,000) = 12,550
Month 9: 10,000 + (8.5% interest on her balance of KES 20,000) = 11,700
Month 10: 10,000 + (8.5% interest on her balance of KES 10,000) = 10,850
Step 3. Compare your budget to the cost of the loan
Tukitumia example yetu, we know Sarah can afford to put away a maximum of 3500 weekly, therefore anasave 14,000 monthly.
The 100,000 loan would costs 18,000 in the first month. Sarah will fall short 4,000KES on her repayment.
If the investment in her salon does not create extra profit in the first month, she will not be able to pay the loan and interest in the first month and this loan is a bad idea.
If she invests the loan smartly and she can create extra profits of 4,000 or more in the first month, she will be able to repay the loan.
If she adjusts her plans she could take a loan that would cost less than 14,000KES in the first month. In this situation she would be able to afford a loan comfortably.
In these three steps, you can tell if yu can afford kuchuka any loan that is presented to you and if I could leave you na bonus point: think about your last loan. If in the last three months you took a loan and you struggled to pay, ask yourself why. Labda previously loan yako ilikua due on 15th and mid-month hauna customers wengi. This tells you maybe your new loan should not be due midmonth so that usistruggle as much.
Now that umelearn how to determine if you can afford a loan, tuko na deals poa coming hapa MESH that could help you grow your biz. Make sure unawatch video zetu na kusoma articles informative kama hii :)