How METRIKA calculates this
Reducing balance: monthly repayment M = P × i ÷ (1 − (1 + i)^−n), where i is the annual rate ÷ 12 and n the number of months. Interest is charged only on what you still owe.
Flat rate: total interest = P × rate × years, spread evenly over the term. Interest is charged on the original amount for the whole period.
True APR: METRIKA finds the annual rate at which your repayments equal the cash you actually receive (loan minus upfront fees). This is the number to compare across banks, SACCOs and digital lenders.
What to know in Kenya
The Central Bank Rate was held at 8.75% in August 2026 and average commercial bank lending rates were 14.3% in July 2026, down from 17.2% in November 2024. SACCO loans are often quoted at 1% a month on a reducing balance (about 12% a year). Chama and some microfinance loans are quoted flat, which roughly doubles the effective rate over longer terms.
Under the Banking Act, banks must disclose the total cost of credit before you sign. Ask for it in writing.
Frequently asked questions
What's the difference between flat and reducing balance?
A flat rate charges interest on the original loan amount for the full term. A reducing balance charges interest only on what you still owe, so the same quoted number costs much less.
What does 1% per month mean?
On a reducing balance, 1% a month is about 12.7% a year once compounded. On a flat basis it is about 12% of the original amount every year, which is far more expensive.
What is a safe loan repayment?
A common rule is to keep all debt repayments below 30% of net pay. Many Kenyan employers cap check-off deductions so your take-home stays above a third of basic pay.
Are loan fees part of the cost?
Yes. Processing fees, credit life insurance and excise duty on fees reduce the cash you receive, so they raise the true APR.
Sources
- Central Bank of Kenya — Central Bank Rate
- The Star — CBK holds rate at 8.75%, lending rate 14.3% (12 Aug 2026)
Rates checked 26 Sep 2026. METRIKA gives estimates, not financial or tax advice.