My name is Stephen. I am in my late 40s. A while back, I acquired a lorry, Isuzu FRR new model on credit basis. My hope was that since this truck was financed, I would be able to get good business and make profit. I saw this as an opportunity to acquire a business asset without using my own money. The lorry has been working as a for-hire truck.
However, making the monthly repayments of around Sh146,000 has been difficult and it is draining me. In some months, I am forced to top up repayments from my payslip. The loan balance is Sh4.3 million. I am now faced with the options of defaulting – which might trigger a recovery – selling off my credit to another buyer – the buyer will have to pay me a deposit of Sh800,000 – or cut my household budget and sell my family car, a 2009 Toyota Harrier – which I estimate can fetch between Sh1.1 million and Sh1.25 million.
My current household budget is around Sh30,000. I am married with three kids all in primary school. My wife and I are permanent and pensionable and work in the civil service. I earn around Sh60,000 net while my wife earns around Sh80,000. I, however, do not want to involve my wife in this because she had warned me about it. I would rather avoid defeat. I do not have any other loans apart from this. Please advise me on how to wiggle my way out
Dominic Karanja, a financial planning and investments consultant.
You are facing a tough situation, but with meticulous planning, it is possible to navigate your way out. Here are strategies to navigate through this financial challenge.
a) Defaulting
Defaulting is very risky and should be avoided. The lender may repossess the lorry, causing you to lose your investment and harm your credit score. Additionally, legal action or recovery fees could arise, and you will still owe the difference between the outstanding loan and the sale price of the repossessed lorry.
b) Transferring the vehicle credit to an alternate purchaser
If you find a buyer willing to pay a Sh800,000 deposit, it could ease your financial burden by reducing your monthly loan obligations. However, ensure the buyer is dependable and capable of taking over the credit to avoid complications. Advertise the lorry for sale, highlighting its condition and earning potential. Ensure the buyer understands they will take over the loan repayments. This is a viable option if you can find a credible buyer quickly.
c) Selling your Toyota Harrier
Selling the Harrier for Sh1.1million to Sh1.25 million could significantly reduce your loan or allow extra payments to lower monthly interest. However, consider how losing the car affects daily logistics and costs. If sold for Sh1.2 million the remaining loan would be Sh3,100,000, reducing monthly payments but not solving the problem long-term and causing family disruption. This is a practical short-term solution.
d) Cutting household expenses
Review your Sh30,000 budget to identify cost-saving areas without affecting essential needs. Cut non-essential expenses like entertainment and subscriptions. Consider the use of public transport to save. Still, this will not solve the monthly shortfall.
e) Enhancing truck utilisation
Identify strategies to increase the truck's revenue by negotiating more favourable rates, extending working hours, or entering new markets (for example industries or regions with substantial demand).
Promoting your services through social media or local networks could attract additional clients. Consider collaborations with other businesses or individuals. Evaluate current operating costs and identify opportunities for reduction. Explore long-term contracts with businesses needing regular transport services.
f) Extra income ideas
Consider starting a family-friendly side business that aligns with your current obligations.
g) Loan restructuring
Communicate with the lender regarding the financial challenges you are experiencing. It is possible that they might collaborate with you rather than repossess the lorry.
Consider options for restructuring the loan, such as extending the loan term to decrease monthly payments or negotiating a temporary payment holiday or reduced payment plan. This may result in lower monthly repayments, even though you may pay more interest over the long term.
Avoid financial strain from acquiring assets on credit. Include your spouse in major decisions for a broader perspective. Build an emergency fund for unexpected challenges.
If you have any money problems, or if you’d like advice on managing your finances, feel free to get in touch at [email protected]
