The Impact of High Lending Rates on Borrowers’ Ability to pay Back Loans in the Tamale Metropolis

Abstract

The main purpose of the research was to find out the impact of high lending rates on borrower’s ability to pay back loans in the Tamale Metropolis. Cross- sectional survey method was adopted. Structured questionnaires were distributed to respondents within Tamale Metropolis to solicit their views concerning lending rates. 200 questionnaires were distributed but 101 respondents were drawn for data collection. Non-probability sampling method basically random sampling and convenience sampling were used.At the end of the study, it was found out that the lending rate that is deemed acceptable by both borrowers and lenders was 25%. On the other hand, the respondents (borrowers) were also of the view that the current lending rate was rather too high. It was also found out that high lending rates affected borrowers’ ability to pay back because they cannot make enough returns from their businesses to service their loans. Based on this notion, the borrowers further said that high lending rates affected their businesses negatively in the sense that they are not able to make enough profits to grow their businesses which is the primary reason why they opted for the loan facility. It can be concluded that lending rates impact on the operations of businesses whether high or low.  Central Bank as well as all financial institutions that have the ability to lend money should adopt Interest Rate Reduction Refinancing Loan (IRRRL) into their business operation so that borrowers can invest to yield enough profit to service their loans and also make some profit for growth.

Keywords: Lending Rates, Loan Facility, Financial Institutions and Interest Rate Reduction Refinancing Loan (IRRRL)