Everything you should know before signing a car loan agreement

In a society where car ownership often symbolises progress and stability, shiny wheels can lie the strain of heavy instalments and unpredictable income.

This forces some people to take up loans to secure car which either ends up as their own or is sometimes reposessed.

Repossession, while common, is often misunderstood. It doesn’t just happen suddenly, it’s a culmination of missed payments, communication breakdowns, and mounting penalties.

When it happens twice, it’s not just a financial blow but an emotional one too.

One of the biggest mistakes car buyers make is rushing through loan agreements. Many focus only on the monthly instalment and not the total cost of the loan. Yet that’s where the danger lies.

Before signing anything, take time to read the fine print. What’s the interest rate? Is it fixed or variable? Are there hidden charges such as insurance loading, processing fees, or penalties for early repayment?

The real price of missing a payment

When a car loan goes unpaid, the lender can legally repossess the vehicle and auction it to recover their money.

Unfortunately, the selling price is often lower than the car’s true value, leaving the borrower with an outstanding balance even after losing the car.

Beyond that, repossession can damage your credit record with the Credit Reference Bureau (CRB), making it difficult to access any form of credit in future.

That means you could struggle to get even a basic mobile loan or a hire purchase agreement for years.

Some Kenyans underestimate the total cost of owning a car, not just the loan instalments, but also insurance, servicing, and fuel.

Missing one or two payments can seem harmless at first, but the penalties and accrued interest quickly snowball into unmanageable debt.

The losses of repossession

The impact of repossession extends beyond the car itself. Losing a vehicle can affect one’s livelihood, reputation, and emotional well-being.

To begin with, the biggest loss is financial. When a car is repossessed, the instalments you had already paid don’t count, leaving you with a loss on all the money you had invested so far.

For people whose work demands constant mobility and public presence, the loss can interfere with professional opportunities and confidence.

There’s also the emotional burden, the embarrassment of public repossession, the social media scrutiny, and the anxiety that follows.

How to avoid falling into the trap

If financial strain threatens your ability to repay, the best approach is to communicate early with your lender.

Most institutions are willing to restructure payment plans rather than go through the legal and logistical costs of repossession.

Secondly, buy within your means. Choosing a dependable used car with manageable instalments is more sustainable than financing a brand-new one that eats into your entire salary.

Be realistic about future expenses

Before signing any car loan, ask yourself: what happens if you lose your job, your income drops, or the economy shifts?

If such scenarios would instantly put your repayments at risk, it’s time to reconsider. Unexpected costs like insurance renewals, servicing, or traffic fines can also add up fast, so build a buffer into your budget.

Finally, budget realistically. Include fuel, maintenance, and insurance in your monthly cost estimates. If those extras force you to miss an instalment, the vehicle may already be beyond your budget comfort zone.