This article is about the major types of loans available in Nigeria this 2023. It will interest you to know that there are different types of loans obtainable in the country today through the terms and conditions on offer. Knowing about them and their differences will help you make important decisions on which one you really need at a particular time so as to avoid plunging yourself into huge debts that may affect you way into the future.
According to Wikipedia, a loan is the lending of money by one or more individuals, organizations, or other entities to other individuals, organizations etc. The recipient (that is, the borrower) incurs a debt and is usually liable to pay interest on that debt until it is repaid as well as to repay the principal amount borrowed. Loans are borrowed by individuals or businesses to address certain financial needs and they have to pay back with interest within a specified/agreed period of time between the lender and the borrower.
Some loans may however be approved if the borrower agrees to offer an asset such as a property to the lender as collateral, and this will be put in writing in the loan document to prevent any legal issues in the future. People do not take loans carelessly as they have to carefully consider the pros and cons before going forward with it, and loans are taken for different purposes or reasons which include but are not limited to the following: for business, investment in real estate, schooling purposes, medical expenses, vacation, to mention but a few.
As aforementioned, to repay a loan requires one to pay back the amount borrowed with interest as agreed by both parties. The interest rate can stay constant for the entire duration of the loan agreement, meaning that it can be fixed, or it can change over the course of time, that is, it can be variable. Interest rates are lower if the loan to be taken by the borrower is secured by collateral such as a house, land, or other valuable possession.
ELIGIBILITY FOR LOAN AGREEMENTS IN NIGERIA TODAY
The following are the criteria to be eligible for loan agreements in Nigeria today. They include that the borrower must:
- Have a functioning bank account
- Be mentally fit
- Be of legal age
- Be credible/trustworthy
- Have good credit rating
- Meet Know Your Customer (KYC) requirement
- Be able to repay the loan amount within the specified period of agreement.
TYPES OF LOANS OFFERED IN NIGERIA CURRENTLY (2023)
The following are the major types of loans available in Nigeria this 2023 in no particular order:
As the name implies, a secured loan is the type of loan agreement between lender and borrower that requires a collateral which serves as a form of security before the agreement can be made formal. For a borrower to secure this loan, they have to present valuable assets to the lender as collateral which forms part of their agreement, and failure to pay back the loan within the stipulated time frame allows the lender the legal right to take control of the collateral.
The lender may possibly sell the collateral off in order to get back their amount that was lent to the borrower should they fail to pay back as at when due. All these of course will be documented for record purposes. People who go for secured loans often borrow very large amounts at lower interest rates due to the fact that they have a collateral worthy of the kind of loan they’re seeking from the lender. The debt can be paid over a long period of time as agreed by both parties.
This type of loan agreement requires no collateral and as a result, the interest rates are usually high due to the fact that the lender is taking a very big risk with the borrower. Unsecured loans or personal loans are not secured against any asset that serves as security. As earlier mentioned, people who go for this type of loan are required to pay back with interest and this will be put in writing for legal purposes. Failure to pay back as at when due may force the lender to file a case against the borrower in a competent court of law in order to get their money back.
SINGLE PAYMENT LOANS
Single payment loans require the borrowers to apply for a loan of a particular amount of money and repay the same amount in full at the specified agreement date. Borrowers do not need to worry about paying interest for this particular type of loan.
MONTHLY PAYMENT LOANS
This type of loan requires the borrower to repay a portion the the amount borrowed from the lender in installments every month with interest. Repayment dates are scheduled at the start of the loan.
SALARY ADVANCE LOANS
Salary Advance loans are small, short-term unsecured loans that rely on the borrower having previous payroll and employment records. As a Salary Advance beneficiary, you repay it either out of your next pay cheque or over an agreed time span.
A mortgage is a loan taken specifically for buying a home. This loan is provided by a mortgage lender or a bank, enabling an individual to purchase a property. The loan must be paid back over the specified period of time and the borrower must provide collateral to the lender as security. Mortgages in Nigeria comprise of the following: principal, interest and collateral. The principal is the amount one is borrowing to purchase their home, the interest is money paid regularly at a particular rate for the use of money lent, or for delaying the repayment of a debt, and the collateral is the asset(s) used to secure the loan.
When you apply for a mortgage, the home you have purchased becomes the collateral and if you fail to repay your debt in full as at when due, the lender, which in this case may be a bank or building association, has the legal right to take possession of the property. If however, you are able to repay the loan with interest as at when due, the property becomes yours outrightly.
FIXED INTEREST RATE LOANS
A fixed interest rate loan is a loan in which the interest rate does not fluctuate during the entire duration of the fixed rate period of the loan. This makes sure that the borrower can accurately predict their future payments.
VARIABLE INTEREST RATE LOANS
A variable interest rate loan is a type of loan where the interest changes according to changes in market interest rates. Unlike a fixed-rate loan, where borrowers pay a constant interest rate, a variable rate loan comprises varying monthly payments that change according to the market interest rate changes.
According to Investopedia, an installment loan provides a borrower with a fixed amount of money that must be repaid with regularly scheduled payments which may not be on a monthly basis but as agreed by the parties involved. Each payment on an installment debt includes repayment of a portion of the principal amount borrowed and also the payment of interest on the debt.
A convertible loan is a loan which can either be repaid or, in most cases, be converted into equity (assets that have debts or liabilities attached to them) at a future date.