Joe, a friend of mine, has been struggling to repay a huge debt that accumulated from the various loans he acquired overtime.

Currently unemployed after he was sacked from a well-paying job recently, Joe is stressed and stranded as he has no other means to service the loans. Joe is not alone as there are probably thousands of other Joes in same situation.  Though many borrowers find problems repaying their loans, many more have succeeded in different ventures, thanks to loans.

Jean Marie Vianney Uwiyambaj’imana, a hardware dealer in Gisozi, Gasabo District acquired a loan to start the business. He says he applied for the loan after conducting enough research about interest rates offered by different banks. Four years down the road, his business is flourishing, and has also completed repaying the loan. 

"My business is growing and I have managed to repay the Rwf5 million debt from the bank. I count myself lucky because I have seen many people fail in businesses, yet they borrowed money to start them,” Uwiyambaj’imana says. Uwiyambaj’imana advises borrowers to avoid loans with high interest, and also to stick to the original reason for borrowing. "Whether one is borrowing for business, school fees or an emergency, they should endeavour to look out for fairer interest rates.”

Jean Piere Mbarushimana, commercial officer at Cogebanque, also warns against using loan money for unplanned things, like taking friends out or going for impulse shopping.

To borrow or not to borrow

Mbarushimana advises borrowers to always draw up clear plans before applying for credit. "One should get a loan for a project that will be able to bring interest or is worth acquiring a loan for. Do not borrow unless you really have too,” warns Mbarushimana.

He discourages people from acquiring debt because their peers at work are doing so, arguing that the ‘loan bandwagon’ is the beginning of a debt trap.

Frodauld Munyankiko, the managing director of Amasezerano Community Banking, discourages young corporates against rushing to acquire salary loans or any other forms of debt, arguing that one must get a loan when you are ready and have a solid venture and loan repayment plan.

"Acquire a loan only when other sources of funding have failed. If you can get an interest free loan from a friend or family member, it is safer than a bank loan or other money lenders,” he says. The experts warn against acquiring loans for projects that will not bring any interest, like spending on luxuries or solving other people’s problems. Mbarushimana advises against anyone taking a loan to clear someone else’s debt.

Loan servicing

Munyankiko says it is important for borrowers to void a new debt while servicing another. Many people make a mistake of borrowing to repay another loan, forgetting that they are incurring more debt that might even be of higher interest.

"Many young people have been trapped into the debt triangle because of this habit,” Munyankiko says. He advises those servicing loans to take loan payment dates seriously.

"If you can afford to pay more than what you are required to every month, use that to your advantage and clear the debt. If you get some ‘unexpected’ money from other ventures, you may want to pay off the loan first before anything else to reduce the repayment period and thus cut on interest,” advises Munyankiko.

How best can one manage a loan?

Martha Kyomugisha, housewife

One should not get more loans when they are still servicing an existing debt.

Andrew Kwizera, lecturer

People should first study the interest rates and settle for a loan that offers the lowest rate. High rates are the main reason people default. 

Randy Biira, teacher

People should not use the loan money on unnecessary things like partying or weddings.

Gabriel Baziramwabo, engineer

Most people are servicing loans, but how one manages the loans is key. Borrowers should always exercise financial discipline and also respect the payment time.