Consumer credit has become a popular option for people to achieve their financial requirements and goals.
For instance purchasing a home,
paying for college, and managing daily expenses.
The loans may be supplied by lenders in the form of cash loans or by sellers in the form of sales credit.(source; Britannica money)
However, as Christians,
we must approach borrowing and debt with biblical discernment.
Also a desire to serve God in all financial decisions.
In this article, we will look at what consumer credit is,
also the types of consumer credit and its disadvantages,
Additionally, how we might manage it responsibly using biblical principles.
What is Consumer Credit?
Consumer credit is a type of financial arrangement in which individuals can borrow money
for personal, household, or family needs.
Types of Consumer Credit
In terms of consumer credit,
there are numerous sorts of credit products offered to individuals:
1. Personal Loans
These unsecured loans are based on creditworthiness
and can cover a range of personal costs.
In Kenya, these services are provided by banks and mobile lending platforms .
Such as M-Shwari and KCB-M-Pesa.
2. Credit Cards
These are revolving lines of credit
that allow users to borrow up to a particular limit
and return it over time.
Interest is imposed on the outstanding balance.
3. Hire Purchase
This is a type of installment credit
where consumers make payments over time.
For items such as furniture, electronics, or vehicles.
Ownership is transferred to the consumer
after all payments have been made.
4. Mobile Loans
A rising market in Kenya,
these are short-term loans supplied through mobile platforms
like Tala, Branch, and Fuliza.
They typically offer small amounts and speedy disbursement.
5. Overdrafts
Some banks provide overdraft services,
allowing customers to withdraw funds beyond their account limit.
6. Mortgages
This is long-term credit
used to finance the acquisition of a property,
with the property serving as collateral.
The Disadvantages of Consumer Credit
While consumer credit can provide financial flexibility,
it also has some risks and drawbacks:
1. High Interest Rates
Consumer credit products, such as mobile loans and credit cards,
sometimes have high interest rates.
This can lead to additional debt if not paid on time.
This can make borrowing more expensive,
particularly for people with low credit scores.
2. Debt Trap
Repeated borrowing to repay prior loans can cause financial distress.
This is popular for short-term loans and revolving credit products.
3. Unfavorable Impact on Credit Score
Not repaying loans on time or defaulting on credit
can result in unfavorable listings with CRBs.
This can have an impact on future financing chances,
as well as career prospects in some situations.
4. Excessive Borrowing
Consumers who have easy access to credit
may take on more debt than they can afford to pay back.
This can have a negative impact
on their financial situation and increase stress.
5. Hidden Costs and Penalties
Credit agreements may have costs
or penalties for early repayment or late payments.
Thus making borrowing more expensive than anticipated.
6. Risk of Asset Loss
In secured loans like mortgages or hire purchase agreements,
failure to repay can result in the loss of collateral,
such as a home or vehicle.
Consumer Credit Act of Kenya
Although Kenya does not have a separate Consumer Credit Act,
Consumer credit is regulated through a variety of legislative frameworks.
They include ;
- the Credit Reference Bureau Regulations under the Central Bank of Kenya,
- the Banking Act,
- and the Microfinance Act.
These guidelines are intended to safeguard customers from;
- unfair lending practices,
- promote openness in credit agreements,
- and encourage responsible lending.
Some Important Protections Include:
i)Borrowers have the right to clear and transparent information regarding ;
- loan terms,
- interest rates,
- fees and penalties before signing a credit agreement.
ii)Consumers can examine their credit reports for free once a year
to track their creditworthiness.
iii)Dispute Resolution where consumers can submit erroneous credit information
to the CRB
or lending institution.
Biblical Principles about Borrowing and Debt
While borrowing is not explicitly prohibited in Scripture,
it is approached with prudence.
Misuse can result in bondage and injury.
Let’s look at some fundamental biblical truths.
1. Avoid Debt if Possible.
Proverbs 22:7(NIV)
“The rich rule over the poor,
and the borrower is servant to the lender.”
Debt forces us into servitude.
As Christians, we are expected to live in freedom.
Not under the constraints of financial obligations.
While some debts, such as a mortgage or business loan, may be required,
we should endeavor to minimize undue debt.
Particularly for materialistic purposes.
2. Be Honest and Repay what You Owe.
Psalm 37:21(NIV)
“The wicked borrow and do not repay,
but the righteous give generously.”
Fulfilling our duties and repaying our debts is an act of honesty.
Christians are called to reflect Christ in all aspects of life,
including their wealth.
It is critical that we honor our obligations to return what we owe,
not only legally, but also as a testimony.
3. Prioritize Stewardship over Ownership.
Everything we own belongs to God (Psalm 24:1).
We are stewards of the resources He has given us,
which include money.
This entails handling our finances in a way that praises Him,
whether we spend, save, give, or borrow.
Reckless borrowing without regard for how it affects our ability to donate,
care for our families.
Or even fulfilling our Christian obligations
might be indicative of bad stewardship.
4. Seek Godly Counsel and Exercise Discernment.
Proverbs 15:22(NIV)
“Plans fail for lack of counsel,
but with many advisers, they succeed.”
Before making major financial decisions,
particularly those involving borrowing,
it is prudent to seek divine guidance.
Talking with financial consultants
can provide valuable advice and insight.
This is especially crucial in today’s environment,
where borrowing is widespread but not necessarily profitable.
5. Prioritizing Contentment over Consumerism.
Hebrews 13:5(NIV)
“Keep your lives free from the love of money
and be content with what you have,
because God has said,
‘Never will I leave you;
never will I forsake you.'”
The allure of consumerism;
—buying goods to feel better or keep up with others—
often leads us to incur unneeded debt.
As Christians, we are called to find happiness in Christ,
knowing that He meets our needs.
How to Use Credit Responsibly as a Christian
1. Understand your Financial Situation.
Before borrowing, analyze your existing financial situation.
Can you afford the monthly payments
without risking your other commitments.
Such as tithing, saving, or looking after your family?
Borrow only what you can afford to repay,
including interest and principal.
2. Stay Within your Means.
Avoid utilizing credit to support a lifestyle that exceeds your resources.
Credit should not be utilized to purchase anything you cannot afford.
Instead, make a habit of planning and saving for significant expenditures.
Using credit to buy non-essential products can easily lead to debt
3. Demonstrate Discipline and Self-control.
Self-control is a fruit of the Spirit (Galatians 5:22-23).
Self-control in spending and borrowing habits
might help you avoid financial difficulties.
Set limitations for yourself
and avoid impulse purchases, particularly with credit.
4. Seek Guidance from God Through Prayer.
Pray about your financial situation,
as you would with any other critical decision.
Ask for wisdom in resource management and discernment
to know when borrowing is prudent
or may cause undue stress.
Believe in God’s provision
and know that He can supply your needs (Philippians 4:19).
5. Understand the Loan Terms and Conditions.
When applying for a mobile loan, bank loan, or credit card,
always read and understand the terms.
Mobile loans offer short repayment periods and high interest rates,
which can quickly build if payments are missed.
Before you commit, ask questions
and make sure you understand the financing fees.
6. Pay More than The Minimum Due.
If you’ve taken out a loan,
aim to repay more than the minimum required.
This is especially true for mobile loans and credit cards,.
Where paying the minimum may appear simple
but ends up costing you more in interest.
To prevent becoming overwhelmed with interest payments,
try to pay off your loans as soon as possible.
7. Create an Emergency Fund.
One of the most common reasons people borrow in Kenya
is to cover unexpected expenses.
Such as medical costs or school fees.
Instead of relying on credit in such times,
begin creating an emergency fund.
Setting away even a small sum each month will assist you
to avoid taking out high-interest loans during a crisis.
The Effects of Debt on Spiritual Life
Debt can have a negative impact on both your financial and spiritual wellbeing.
When debt consumes us, it can cause anxiety, limit our capacity to give generously.
And keep us from focusing on God’s plan for our life.
By using credit correctly, we can relieve ourselves of unneeded obligations.
And completely devote to the calling God has placed on our lives.
Matthew 6:24(NIV)
“No-one can serve two masters.
Either he will hate the one and love the other,
or he will be devoted to the one and despise the other.
“You can not serve both God and Money.”
Allowing debt to consume our life can cause us to put financial commitments
over our relationship with God.
“Remember this: debt is a form of bondage.
It is a financial termite.” – Joseph P. Wirthlin
Conclusion
Consumer credit, when handled correctly, may be an effective financial tool.
However, as Christians,
we must approach borrowing with discernment and prayer.
Also thorough understanding of biblical principles.
We should practice good stewardship,
avoid unnecessary debt and seek God’s guidance.
With this we can handle credit in a way that honors God
and brings financial peace.
Remember, God is the ultimate provider,
and true contentment comes from Him.
Not for material possessions or financial gain.
Let us be wise and devoted stewards of the riches
He has given us.
Consumer credit can provide critical financial assistance,
but customers must utilize it carefully.
It is also important we understand;
- the various types of credit,
- the regulatory framework (such as CRB laws),
- and the potential dangers related with consumer credit
These are critical for preserving financial health
and avoiding the traps of overborrowing.
