As borrowing becomes easier for Kenyans, financial experts say people need to look beyond how quickly they can get a loan and ask whether the debt will improve their financial position or leave them struggling to repay.

For many Kenyans, borrowing money has become part of everyday life.

A loan can help pay school fees, stock a small business, buy a vehicle, build a house, or deal with an unexpected emergency.

But the same loan can also become a financial burden when it is used to pay for things that disappear quickly while repayments continue for months or even years.

This makes the question less about whether borrowing is good or bad and more about what the borrowed money is being used for, how much the loan costs and whether the borrower can afford to repay it.

The concern comes as Kenya continues to record high levels of loans that are not being repaid on time.

The Central Bank of Kenya reported that gross non-performing loans in the banking sector stood at Sh674.4 billion in December 2025, equivalent to 15.4 percent of gross loans. Although the ratio had fallen from 17.6 percent in June 2025, the level of bad loans remained significant.

For ordinary borrowers, the distinction between useful debt and harmful debt can come down to one simple test: Does the money help build value or simply pay for something that will be gone before the loan is cleared?

When debt can work in your favor

Good debt generally refers to borrowing that helps a person acquire an asset, increase their income or improve their future earning potential.

A mortgage is one example.

Some affordable housing loans backed by the Kenya Mortgage Refinance Company have offered interest rates around nine percent, allowing borrowers to finance homes or property that can retain or potentially increase in value over time.

Business borrowing can work in a similar way.

A trader who takes a loan to buy stock, for example, could use the money to increase sales and generate enough income to repay the loan while making a profit.

The same applies to equipment.

A delivery business that borrows to buy a motorcycle or other equipment may be using debt to acquire an asset that contributes directly to income.

SACCO borrowing can also be useful where the loan comes with relatively affordable terms and is used for a productive purpose such as buying land, improving a home, paying for education, or expanding a business.

However, simply borrowing from a bank or SACCO does not automatically make the debt good.

The purpose of the loan and the ability to repay it remain critical.

When borrowing becomes expensive

Bad debt often begins with spending that provides a short-term benefit but leaves a long-term repayment obligation.

This could include borrowing to fund entertainment, upgrading a phone unnecessarily, pay for impulse purchases, or cover everyday expenses without a clear repayment plan.

Digital lending has made this type of borrowing particularly easy.

The scale of digital borrowing in Kenya has grown rapidly. In December 2025, the Central Bank said licensed digital credit providers had granted 6.6 million loans worth Sh109.8 billion as of November that year. The regulator has also warned about concerns linked to unregulated digital lenders, including high costs, unethical debt collection practices and misuse of personal information.

A borrower can apply for a short-term mobile loan and receive money quickly. But once the money is spent, the repayment obligation remains.

If the borrower takes another loan to clear the first one, the situation can quickly become difficult to manage.

The real cost can also be higher than the amount initially borrowed because of interest, fees and penalties.

This is why borrowers are advised to look at the total cost of a loan rather than focusing only on how much money will land in their account.

Some debt depends on how it is used.

Not every loan fits neatly into the good or bad category.

A car loan, for example, could have very different consequences depending on why the vehicle is being purchased.

A person buying a vehicle to run a taxi, delivery or other income-generating business may use the asset to generate money for loan repayments.

But someone borrowing heavily to buy a personal vehicle may be taking on debt for an asset that generally loses value over time.

Education loans also require careful consideration.opportunities,

Education can improve a person’s earning potential, but borrowers still need to consider the cost of the course, employment opportunities and whether the expected increase in income is likely to justify the debt.

Three questions to ask before borrowing

Before signing a loan agreement or tapping the borrow button on a mobile phone, borrowers can start with three questions.

What am I using the money for?

If the money is going towards an asset, business or investment, consider whether it is likely to generate value or income in the future.

How much will the loan actually cost me?

Look beyond the advertised interest rate. Check processing fees, insurance charges, penalties and any other costs attached to the loan.

A loan that appears affordable at first can become much more expensive once all the charges are included.

Can I repay it if my income drops?

A repayment plan should not be based only on the assumption that everything will go perfectly.

A borrower should consider what would happen if business slows down, income falls, or an unexpected expense arises.

If one difficult month would make it impossible to repay the loan, the borrowing may already be stretching the person’s finances too far.

Your borrowing history follows you

Failing to repay a loan can have consequences beyond the immediate financial pressure.

Credit Reference Bureaus, or CRBs, collect information about borrowers’ credit histories and provide reports to authorised lenders. Kenya’s credit information-sharing system includes both positive and negative credit information.

This means a missed repayment can become part of a borrower’s credit history and may affect access to credit in the future.

The Central Bank’s regulations give customers the right to obtain a credit report and to dispute information they believe is inaccurate.

The rapid growth of digital borrowing makes this increasingly important. With licensed digital lenders issuing millions of loans worth more than Sh100 billion, more Kenyans are interacting with formal credit systems through their phones.

For a borrower, taking a loan today to cover a short-term expense could therefore have consequences beyond the immediate repayment. A poor credit history may affect future access to credit when money is needed for a business, home or other major investment.

Debt is a tool, not automatically a problem.

Borrowing money is not necessarily a financial mistake.

The bigger issue is whether the debt is affordable and whether it is being used for something that creates value.

Borrowing at a manageable cost to buy productive equipment or expand a business is different from taking an expensive short-term loan to finance spending that provides no lasting financial benefit.

Before taking on debt, borrowers need to look beyond the amount they are being offered and consider what happens after the money is spent.