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Home Investments

Evaluating the best methods for acquiring assets

Faith Ndunda by Faith Ndunda
December 20, 2024
in Investments
Reading Time: 2 mins read

Most individuals in Kenya acquire primary assets through cash or loans. Deciding on the avenue to consider depends on the financial position, long-term goals or risk tolerance of an individual.

Acquiring assets using cash implies that there are no debt obligations. One is exempted from the regular monthly repayments, interest rates and financial stress associated with debt repayment. With cash, one retains full ownership of the asset without interference from lenders. Ownership control is vital in both business and personal assets. Obtaining assets eliminates the risk of default which often may result in financial or legal consequences.

The downside of using cash to acquire assets is reducing one’s liquidity. With less liquidity, there is less cash for usual expenses and emergencies. For businesses with limited or fluctuating cash flows difficult since it is essential in the day to day running of the business. Cash used to acquire an asset could be used to acquire an asset with higher returns. For instance, using cash to acquire a vehicle or property with no returns may not provide the same returns as stocks or business ventures. Paying for an asset in cash means waiving the ability to use debt to acquire more assets, reducing the extent of investment.

Acquisition of assets through loans lets buyers acquire larger and more expensive assets that could otherwise not have been afforded through cash only. It can be advantageous in investment ventures like real estate where loans allow for fast growth and high returns. Taking loans also preserves one’s cash flow for other investments and operational costs. It is especially advantageous for businesses with scarce cash flow. Taking loans is key in building a positive credit history and credit score provided one does not default on repayment.

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Loans however are subject to fees and interests that eventually increase the cost of acquiring assets. In Kenya, the interest rates and processing fees can be high especially for personal loans. If the borrower defaults on the loan they risk losing the asset and possibly facing legal action and this impacts their financial situation. For assets that do not generate returns, the loan repayments cause financial strain limiting long-term growth.

It all depends on the individual circumstance on whether to choose loans or cash to acquire assets. Cash reduces risk and provides stability but loans provide liquidity and leverage. Financial position, value of assets and risk-tolerance is a key guide in making this decision.

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