General Motors (GMEA) has partnered with NIC Bank to create a dedicated financial solution to the GM’s customers. This will enable them enjoy cheaper asset finance rates than what is being offered by other banks.
Under the deal GMEA customers will be able to enjoy up to 95% financing on Isuzu and Chevrolet vehicles at an interest rate of 15.5% on reducing balance. The fact that the loan is offered at 15.5% on reducing balance is important to note given that most banks give interest rates as low as 10% but on a flat rate. A flat rate means that you will be paying the same amount for the period of the loan which is more expensive than a loan issued with a reducing balance. For example, if you take a Kshs. 5,000,000 loan for a period of 6 years at a flat rate of 13% (which is actually 21.21% using the reducing balance method) you will be making a monthly repayment of Kshs. 123,296.75 while a person who takes out the same amount for the same period at an interest rate of 15.5% on reducing balance will make a monthly repayment of Kshs. 107,087.44. This gives a Kshs. 16,209.31 difference in monthly repayments and if calculated for the period of the loan it comes to a whooping Kshs. 1,167,070.32 not a small figure I any way you look at it. So don’t get carried away by low interest rates, ensure to ask the method used to calculate the loan more so for asset financing.
Speaking at the signing of the agreement GMEA Managing Director Rita Kavashe had this to say “General Motors is rewarding its customers because the spike in interest rates may make it difficult for them to purchase our vehicles as they had intended. During the last quarter of 2015, we took an unprecedented decision to retain our prices despite the fluctuating exchange rates that adversely affected the Kenya Shilling against the US Dollar. As a show of market confidence, we embarked on a campaign to re-assure our customers that ‘bei ni ile ile’ (Our price remains the same). This also demonstrated our long term confidence in the Kenya Shilling.”
NIC Bank’s Executive Director Alan Dodd noted the importance of providing a stable and predictable interest rate environment for business, which would make it easier to project performance into the future. He continued to state that the product is tailored to reflect some of the lowest asset finance rates in the market to ensure that GMEA vehicles remain competitive.
The NIC asset finance package will carry a 72-month repayment schedule and will be available right across GM’s dealership network in the country.