@Tito44....

U're assuming straight line basis for charging interest which is rarely used by banks or Saccos.... In reality u pay interest on the OUTSTANDING balance.....

I like working with actual numbers so here goes...

Assuming that U and I earn about the same and can only afford to pay about the same in installments..

I borrow 200K from a bank for 2 years... monthly installments = 9,984.82.... total interest = 39,635.69

U borrow 300K from your Sacco for 3 years.... Monthly installments = 9,964.29.... When 200k PRINCIPAL is repaid (after 25 months),you tell them to write off the balance with your contributions.... Ur total interest paid will be 58,714.55 MINUS 6,301.15 = 52,413.40

Know this... Financial institutions collect the largest portion of total interest AT THE BEGINNING and more of the Principal AS THE END OF THE TERM OF THE LOAN nears...

I could send you a reducing balance loan schedule calculator,you do the math yourself....

To your second example:::::-

I agree that when you borrow 300K from the Sacco,you effectively have 400K (300K loan and 100K in savings)... HOWEVER,after two years,I will have completed paying my loan and the money that was going towards paying the bank accumulates as savings to 100K.. You on the other hand will still be paying your loan in the third year.... so at the end of the third year,you and I will effectively have 400K!!!

ACTUALLY... U'll have less since you'll have paid nearly 18K more in interest... Hope you're dividends will be able to cover that....

PS: This is the first time I'm doing this calculations and I'm shocked!!! I'm really beginning to wonder about this Sacco's phenomenon......

@ Niando

What is the opportunity cost of having a payslip(a piece of worthless paper) in your bank managers office?


WOULD RATHER DIE FIGHTING 4 MY RIGHTS THAN LIVE FOREVER WITHOUT ANY RIGHTS

@Niando.....

Soma the other posts in this thread... The premise of the discussion is that I need 300K... Do I save 100k in a Sacco and then borrow 3 times my savings = 300K or do I keep 100K under my mattress and then borrow 200K from a bank???

... and LIKE I SAID BEFORE,I have borrowed from a bank before with no such security requirements other than my salary slip which like my friend has pointed out - No opportunity cost in depositing it...

@Mozenrat

Why is it so hard for you to give similar comparisons? You conveniently use a repayment of 9,984 for the bank and 9,964 for the sacco. You then go ahead and give an inflated figure for the sacco interest. As if that is not enough,you clearly say that the sacco loan will be written off after two years with the 100k. This essentially means the sacco loan is also cleared after 2 years. So u are the bright one to continue saving after clearing your bank loan while the foolish me will not save any single cent and yet we've both cleared our loans?

It's good you've said it is the first time you are calculating this. So,i will pardon you for the mistake you've made but pliz don't go on fooling guys on how better a bank loan is compared to saccos. You even conveniently forgot to include the loan facilitation fee charged by banks.

The problem is that you are relying on those loan calculators. Those work in the USA my friend. Get a spreadsheet and see the difference for yourself. I will soon be posting the entire breakdown side by side.

@Tito44...

Wacha kuenda personal.....

Who told you these loan calculators are used in the States... Enter any Stanchart ATM area today and pick the loan schedules they give you for their personal loans... I assure you,you will get the same amount.

I have used the figures that are nearest to each other for the Bank and Sacco. This is supposed to be one individuals choice so I'm assuming that the same individual can only afford roughly 10k per month installments.... If you shorten the Sacco period to 2 years for the 300k,the fellow has to pay installments of Kshs. 14,122.14 with interest totalling to Kshs. 38,929. If he chooses a bank,the guy and pays even less at 13,556.29 he'll be finished in 17months with an interest of Kshs.27,761.85..... If he paid slightly more at 14,474.44,he finishes in 16 months with an interest of Kshs. 25,827.14

When I said I've never done this computations,I meant that I've never compared the two. Otherwise I once worked for a bank IN KENYA and a significant portion of my work involved providing revenue assurance by recomputing interest income and expense for the bank.... I also have my schedule of repayments for the last loan I took from my Sacco and rest assured my calculator is accurate...

NIC Bank is not in the STATES... Go to their website and see how interest is computed ama unadhani kuna reducing balance ya Kenya na ingine ya States....

@dijkstra

You are an insult to your name.... How can you use the name of one who was so logical yet resort to emotions in a mathematical discourse.....I once worked for a bank (back office)... but no more.... You maybe surprised to learn that I'm now an official in two Saccos and you may require my signature for your loan... ; -)

I concede on the insurance,commitment fee etc etc..... Lakini if you had bothered to read my earlier posts,you'd have noticed that I'd already stated that by requiring only two signatures,Saccos are a lifeline.... Further,I stated that I agree that Banks 'fine print' is used to fleece people... U can assume fine print includes all those charges....

Seeing as all those who are now posting have moved out of the scope of the argument - which was limited to interest rates... I rest my case.....

If you can use numbers AND THE CORRECT COMPUTATIONS PROCESS to show that saving 100k in a sacco then borrowing 300K (@12%) will result in lower INTEREST charges than storing the same 100K under my bed then borrowing 200K (@18%) from a bank... BRING IT ON....

@Tito44

You've just used two posts to say... I WILL,I WILL.... Then Do it...

I suspect once you realise that you're wrong you never will....

Msema Kweli ndiye huyu hapa...

http://www.nic-bank.com/...al-Link/Loan-Calculator

Kumbe hii mambo ya interest ni moto hivi

@dijkistra

I don't know why you're inventing your own case study...

Further,u've not stated how you got your interest figures.... I'm using what I know the Banks use and YES I used to do the interest recomputations for them...

U asked for similar comparison but they also have to be realistic....

So same guy,requires same amount,can only afford same amount in installments...

Here are the terms....

1. The case study is...Mr [dijkstra] needs 300K...Mr [dijkstra] can only afford to pay 10k a month in loan installments... Two SKerians are advising on how he can get that money via a loan...

Sacco option

Save 100,000... for a year....

earn 8,000 in interest....

Borrow 300,000k from the Sacco at 12% interest....

Remembering that he can only afford to pay 10k a month,the loan will take exactly 36 months (3 years) to pay off at a rate of 10k a month...

Total interest = Kshs. 58,461.83...

Net cost = Kshs. 58,461.83 - 8,000 = Kshs. 50,461.83

At the end of 3 years,Mr [dijkstra] has had 400K in capital i.e. 300K borrowed + 100k saved in contributions...

Bank option

Save 100,000 under your mattress...

Interest earned = 0

Borrow 200,000 from the bank at 18% interest....

Remembering that he can only afford to pay 10k a month,the loan will take exactly 24 months (2 years) to pay off at a rate of 10k a month...

Total interest = Kshs. 39,565.35...

loan arrangement and insurance fees (per your own figures) = Kshs. 16,000...

Therefore net cost = Kshs. 55,565.35

At the end of 2 years,Mr [dijkstra] has 300K in capital (100k mattress money and 200k loan).... but while in the sacco he would still be paying 10k in loan installments in the third year,he can now save 10k monthly under his mattress such that at the end of the 3rd year,he will have 420k in capital....

Summary

Sacco 400,000 (Capital) - 50,461.83 (total cost) = Kshs. 349,538.17 (net)

Bank 420,000 (Capital) - 55,565.35 (total cost) = Kshs. 364,434.65 (net)

Bank option still beats Sacco option by 14,896.48

When you post your rebuttal,please state how you came up with your interest figures so that we can show you the error of your ways....

Anyone checked out the Stanchart or Cooperative Bank loan schedules or the NIC bank calculator ???.... Prove my calculations wrong. They are available in the streets of Nairobi...

Those of you interested in doing the above calculations for yourself,Just use MS Excel and the PMT(a/12,b,c) function where a = interest rate per year,b = number of months,c = loan amount.... This gives you the monthly installment... Multiply that by number of months (b) to get total figure repaid.... subtract initial loan... Whallah,you have your interest......

.... and by the way... that nugget about 'Little knowledge' is very true....

.... for instance the arrangement fee for Stanchart is 3%.... while insurance is 0.3% per annum...

.... Therefore the 200,000 loan would have charges amounting to 7,800 and not 16,000..

... angalia hapa.. http://www.standardchart...ees%20and%20Charges.pdf

@ Mozenrat

Yes,yes i have seen. BTW,because of that myth of SACCO loans being cheap borrowing,i know of some sacco officials who con some naive and unsuspecting members that the 12% interest p.a is only 1%( and conveniently fail to state that the 1% interest is monthly). Most saccos officials when dealing with new members dont like talking of 12% interest.


WOULD RATHER DIE FIGHTING 4 MY RIGHTS THAN LIVE FOREVER WITHOUT ANY RIGHTS