Zimbabwe offers different types of loans from different types of institutions. This article will look at loans in Zimbabwe.
How to apply for a loan in Zimbabwe
Loans are extended by banks and micro finance institutions in Zimbabwe. Employed people are eligible to get loans from banks at lower interest rates, while unemployed people can get loans from micro finance institutions.
Types of loans
Personal loans
Personal loans are loans extended to applicants by financial institution without a form of collateral. In Zimbabwe, they are normally called salary based loans, where the vetting process is centred on the employment contract. People working in reputable organisations and in the civil service are targeted by these types of loans. It is essentially loan against the income of the applicant. Almost every bank in Zimbabwe offers personal loans. Micro finance institutions also offer personal loans in Zimbabwe. Banks offer these loans for interest ranging from 10% to 20% per annum for USD loans, while the rate is higher for Zimbabwe Dollar, or ZiG loans. Micro finance institutions offer these loans for interest rates ranging from 5% to 15% per month.
Student loans
Student loans are loans meant to cover student living expenses, tuition and fees for students. These loans are usually repaid by students after they finish their education thought the salaries they earn. Due to high rates of unemployment, Zimbabwean financial institutions shy away from offering student loans.
Car loans
Car loans in Zimbabwe are loans extended to individuals for the purposes of buying cars for loan applicants. The funds are paid directly to car dealers, and the applicants are handed the cars. The loan interest for car loan in Zimbabwe range from 10%- 20% per annum. Micro finance institutions in Zimbabwe don’t normally offer car loans.
Mortgage loans
Mortgage loans are loans offered to purchase immovable property such as homes, commercial buildings or land. The loan is secured on the property being purchased and in event of default, Zimbabwean banks repossesses the property to recover the funds extended as a loan. The average interest rate for mortgage loans in Zimbabwe is around 8% to 15%. Micro finance businesses do not offer mortgage loans, however, the offer loans secured on immovable properties such as houses and land.
Home equity or equity release loans
Home equity loans are sometimes referred as the second mortgage, as they are basically mortgage loans that are taken against a property that the applicant already owns. The loan is secured on the existing property. The interest rates for home equity loans are almost the same as mortgage loans. In Zimbabwe, home equity loans are secured on complete houses with certificates of occupancy.
Business loans
These are loans offered to purchase fixed assets or as working capital. They are used to buy equipment, reorder stock, settle creditors or for day to day running of the business. They are extended to businesses that are assessed as viable and able to repay back the loans. Micro finance institutions offer these loans to small to medium enterprises (SMEs). Interest rates for SME loans extended by micro finance institutions attract a huge interest rate, as high as 30% per month.
Overdrafts
Overdraft facilities are given to bank account holders who have been in good standing for a long time, and are enabled to withdraw more money than in their accounts. In Zimbabwe, overdrafts are usually given to reputable businesses to as to minimize disruption in business due to a temporary lack of funding.
Peer-to-peer lending
Peer to peer lending is an unregulated form of lending between two people or entities. This is the most common type of lending in Zimbabwe. Loans are extended between friends and relatives or related companies. Also company directors and owners extend loans to their businesses.