Written by the Kopesha team · Last reviewed 23 September 2026 · No lender pays for these guides · How we write them
The two offers
You need TZS 1,000,000 for six months. Lender A quotes 12% a month, flat, with a 2% arrangement fee deducted at disbursement. Lender B quotes 15% a month on a reducing balance, no arrangement fee, but requires 10% of the loan held as compulsory savings until the end.
A's rate is lower. Most people stop there. Do the arithmetic instead — it takes four lines each.
Lender A, in full
Interest: 1,000,000 × 12% × 6 = 720,000. Total repayable: 1,720,000, which is 286,667 a month. Fee: 2% of 1,000,000 = 20,000, deducted, so 980,000 reaches you. Cost of the loan: 720,000 + 20,000 = 740,000 for the use of 980,000 over six months.
Lender B, in full
On a reducing balance at 15% a month over six equal payments, each installment is about 264,237 and the total repaid is about 1,585,421 — so the interest is about 585,421. No fee. But 100,000 is held as savings until the end, so only 900,000 is usable while the loan runs; you get the 100,000 back at the end.
Cost of the loan: 585,421, for the use of 900,000 over six months, with 100,000 of your own money locked up along the way.
Which is cheaper
B costs 585,421 against A's 740,000 — B is cheaper by about 154,579, despite quoting the higher rate. The reason is the shape, not the number: A charges every month on the full million even in month six, when you have already repaid most of it.
The monthly payments tell a different story though: A is 286,667 and B is 264,237, so B is easier month to month as well. If A had been the smaller payment, the choice would have been a genuine trade-off between total cost and monthly strain, and then the right answer depends on your cash flow rather than on arithmetic.
The method, in five lines
For each offer write: (1) what reaches your hand after deductions; (2) the total you hand back; (3) the difference between those two, which is the cost; (4) the monthly payment; (5) anything of yours that is locked up and when you get it back.
Then choose on lines 3 and 4 together. Line 3 is what the loan costs. Line 4 is what you have to survive. A loan that wins on 3 and loses badly on 4 is a loan that defaults in month three, and a default costs more than either offer.
Things that change the answer
Early settlement: on a reducing balance, paying off in month four genuinely saves the remaining interest; on flat interest it usually saves nothing at all, so a trader expecting a good season should weigh that heavily.
Compulsory savings: if it earns interest and you keep it afterwards, it is a cost of the loan but not a loss. If it earns nothing, it is simply a reduction in the money you borrowed.
And the things that are not on the sheet at all: how quickly each lender answers the phone, whether they restructure, and how far the branch is. Those decide how a bad month goes, and a bad month is what you are really buying insurance against.
Sources
This article is general information about borrowing in Tanzania. It is not advice about any particular lender, and the worked examples are examples only — not a quote or an offer from anybody.
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