Borrowing and debt management – Financial Awareness (Senior 1 Entrepreneurship) | Ganzaa

Financial Awareness

Lessons

Senior 1 · Entrepreneurship

Financial Awareness

5 lessons

Lesson 4 of 5

Borrowing and debt management

25 min

Case: two ways to own a motorbike

Byiringiro, the moto driver from Unit 2, pays Frw 5,000 every day to rent someone else's motorbike. He wants his own. A motorbike costs Frw 1,500,000, and he has no savings large enough. He has two offers:

A. A loan from his Umurenge SACCO of Frw 1,500,000, at 18% a year simple interest, repaid in equal monthly instalments over 2 years. His brother, who has a salaried job, must sign as guarantor.
B. A "work-to-own" deal with a bike owner: Frw 7,000 a day, 6 days a week, for 78 weeks (18 months). Nothing to sign at a SACCO, and no guarantor. The bike becomes his after the last payment; one missed week and the owner takes it back.

(An illustrative case; the rates and prices are illustrative, 2026.)

Think about it: Which offer looks easier? Which do you think costs more?

Definition

Borrowing: receiving money (or goods) now and agreeing to pay it back later, usually with an extra charge. The money borrowed is a loan.

Example: Byiringiro's Frw 1,500,000 SACCO loan.

Definition

Principal: the amount borrowed. Interest: the price of borrowing, paid to the lender on top of the principal. The interest rate is the interest as a percentage of the principal per year.

Example: principal Frw 1,500,000; interest rate 18% a year.

Definition

Collateral: something valuable the borrower promises to the lender, which the lender can take if the loan is not repaid. A guarantor is a person who promises to repay if the borrower cannot.

Example: land papers, a motorbike's registration card, or Byiringiro's brother as guarantor.

Definition

Debt: money a person or business owes. Default: failing to make repayments as agreed.

Example: after taking the loan, Byiringiro has a debt of Frw 2,040,000 including interest; missing three instalments would be a default.

Working out the cost of a loan

With simple interest, where $P$ is the principal, $R$ the rate per cent per year and $T$ the time in years:

$I = P \times \frac{R}{100} \times T$

$\text{total to repay} = P + I$

$\text{instalment} = \frac{\text{total to repay}}{\text{number of payments}}$

Worked example

Offer A: the SACCO loan

Step 1: interest. $I = 1{,}500{,}000 \times \frac{18}{100} \times 2 = 540{,}000$

Step 2: total to repay. $1,500,000 + 540,000 = 2,040,000$

Step 3: monthly instalment over 24 months. $\frac{2{,}040{,}000}{24} = 85{,}000$

Byiringiro repays Frw 85,000 a month for two years, Frw 2,040,000 in total.

Worked example

Offer B: the work-to-own deal

Total paid: $7{,}000 \times 6 \times 78 = 3{,}276{,}000$

Extra paid above the price: $3,276,000 - 1,500,000 = 1,776,000$

The "easy" deal costs Frw 1,236,000 more than the SACCO loan ( $3,276,000 - 2,040,000 = 1,236,000$ ), and one missed week can lose him the bike and everything already paid.

Worked example

Can he afford it?

Once the bike is his, Byiringiro pays no rent. He expects to take about Frw 15,000 a day and spend Frw 4,000 on fuel, for 26 working days a month.

Monthly income: $(15{,}000 - 4{,}000) \times 26 = 286{,}000$

Share of income going on the loan: $\frac{85{,}000}{286{,}000} \times 100\% \approx 29.7\%$

A common rule of thumb is to keep loan repayments below about a third (33%) of income, so Offer A is affordable, if only just. He should keep a small emergency fund for repairs.

Warning

Beware of "easy" and "instant" money. Deals with no paperwork, loan apps that pay out in minutes, and private moneylenders often charge far more than a SACCO or bank, and some take your phone contacts or your property if you fall behind. Always work out the total you will repay before you agree.

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Borrowing well and managing debt

Sensible borrowing	Risky borrowing
To buy something that earns income (a motorbike, a sewing machine, stock)	To pay for wants: parties, phones, fashion
From a regulated lender, with the total cost written down	From an unknown lender, with the cost unclear
Repayments below about a third of income	Repayments that take most of your income
One loan at a time	A new loan to repay an old one (a debt trap)

Managing a debt:

Know exactly what you owe, to whom, and when each payment is due.
Put repayments in your budget as a fixed bill, like rent.
Pay on time: late payments add charges and damage your record with lenders.
If you cannot pay, talk to the lender before the due date; SACCOs can often reschedule.
Never borrow to repay another loan.

Tip

Ask the three questions before any loan: What is the total I will repay? What will I lose if I cannot pay? Will the thing I buy earn the repayments?

MoneyCoach, "Loans 101 (Loan Basics, part 1 of 3)" (about 4 minutes). Watch for how the principal, the interest rate and the length of a loan change the total you repay. The video uses dollars; the ideas are the same in francs.

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Activity: at the SACCO desk

In pairs, one student is a SACCO loans officer and the other a young tailor who wants Frw 400,000 for a sewing machine.
The officer asks: What is the loan for? How will you repay it? What is your monthly income? Who is your guarantor?
Together, calculate the interest at 18% a year for 1 year, the total to repay, and the monthly instalment over 12 months.
Decide whether the loan is affordable using the one-third rule, then swap roles.

Practice

Define principal, interest and collateral.
Calculate the simple interest on a loan of Frw 600,000 at 15% a year for 2 years, and the total to repay.
A total of Frw 480,000 must be repaid in 12 equal monthly instalments. How much is each instalment?
Mutesi earns Frw 150,000 a month. Her loan instalment is Frw 60,000. What percentage of her income is this? Is it within the one-third rule?
Give two differences between sensible and risky borrowing.
Explain what a debt trap is, and how to avoid one.
Byiringiro could also save for the motorbike. If he saves Frw 100,000 a month, how many months would it take to save Frw 1,500,000? Give one advantage and one disadvantage of saving instead of borrowing.

Show answersHide answers

Principal: the amount borrowed. Interest: the price of borrowing, paid on top of the principal. Collateral: something valuable the lender can take if the loan is not repaid.
$I = 600{,}000 \times \dfrac{15}{100} \times 2 = 180{,}000$ ; total $600,000 + 180,000 = 780,000$ .
$\dfrac{480{,}000}{12} = 40{,}000$ : Frw 40,000.
$\dfrac{60{,}000}{150{,}000} \times 100\% = 40\%$ . No: it is above one third (about 33%), so it is risky.
For example: sensible borrowing buys something that earns income, risky borrowing pays for wants; sensible borrowing keeps repayments below a third of income.
Taking a new loan to repay an old one, so the debt keeps growing. Avoid it by borrowing only what you can repay from income, and talking to the lender early if you cannot pay.
$\dfrac{1{,}500{,}000}{100{,}000} = 15$ months. Advantage: no interest (saves Frw 540,000 compared with Offer A). Disadvantage: he keeps paying rent for 15 months and waits longer to own the bike.

Sources and credits

Photo: A Moto (motorcycle taxi) in Kigali, Jenny Paul, via Wikimedia Commons, CC BY-SA 4.0.
Video: Loans 101 (Loan Basics, part 1 of 3), MoneyCoach, embedded from YouTube.

Written by Ganzaa: the moto-driver case, the tables, the bar diagram, the worked examples, the activity and the practice items. Interest rates, prices and the one-third rule of thumb are illustrative (2026).

1Case: two ways to own a motorbike

2Working out the cost of a loan

3Borrowing well and managing debt

4Activity: at the SACCO desk

Case: two ways to own a motorbike

Working out the cost of a loan

Borrowing well and managing debt

Activity: at the SACCO desk