In recent years, getting a loan in Nigeria has become very easy. With the constant improvement in technology, borrowers can now safely request for and receive loans in a space of 24 hours to 7 days depending on their request and available information.
Understanding when loans are a good solution is a key to being financially successful and it is important to always keep in mind that loans are not a good idea if you cannot afford to pay them back in the expected time frame.
What is a loan?
A loan is the lending of money from a person or group of people, an organization, a bank or financial institution with an agreement to pay back within a specific time. The expected repayment is the principal amount which is the amount borrowed, plus an interest percentage which is the amount charged for receiving the loan.
Occasionally, some piece of property called collateral is pledged by the borrower to the lender to secure loan repayment. The interest rates paid on loans are also a primary source of income for the individual, the bank or financial institution and as lenders take a risk that the borrower may not repay the loan, they have to equalize that risk by charging a fee which is known as interest.
Types of Loans in Nigeria
There are various ways to get an urgent loan in Nigeria due to the increasing number of digital financial service platforms granting quick loans to probable customers and understanding the differences between the different types of loans can help you know which loan will best suit your needs and help you weigh your options.
Below are the types of loans you can get in Nigeria, eligibility criteria, how to get your desired loan and everything you need to know:
A secured loan is a type of loan that involves collateral – financial assets you own such as a house, car, stocks, or bonds to secure the loan. This is to create some sort of security against the money you borrow. If the borrower does not pay back or defaults, the lender can sell the asset to repay the loan.
With secured loans, you can borrow large amounts at a lower interest rate because of less risk to the lender and you can pay back over a long period with the maximum of most lenders being five or perhaps seven years.
An unsecured loan is a type of loan that does not require collateral – the borrower does not have to secure the loan using any asset. The lenders are usually thorough when evaluating applicants as only a signature is what is needed or the borrower’s creditworthiness.
This is a preferred option but not common because of higher interest rates due to excessive risks. Although you can borrow on an unsecured loan for some time between three and 25 years, where longer deals are available, your financial records are meticulously examined to estimate if you can pay back the loan.
This is a type of unsecured loan granted to an individual depending on the applicant’s credit history and ability to pay back. They are usually for small amounts but with high interest rates.
Depending on the financial institution in Nigeria, you can apply for this loan with these criteria:
- Age: From 21- 60 years
- Min Loan: ₦15,000 – ₦175,000
- Max loan: ₦20,000,000
- Min Salary: ₦30,000 for Nigeria citizens and ₦50,000 for Foreigners.
- Completed application form
- Bank statements for the last 3 months
- Pay slips for the last 3 months
- Letter of Awareness from employer to domicile your salary with the Bank.
Interest rates differ depending on the amount you apply for.
Whereas for some online platforms in Nigeria, all you need is to have a business in specific areas, or provide your information on the available forms on the platform. And it takes 3 to 7 working days for your loan to be approved while you are expected to pay back in 30 to 180 days with the agreed interest.
It is important to remember that interest rate differs depending on the loan amount and the platforms.
Single Payment Loans
This is a type of loan that allows the borrower to repay the loan in full and within a fixed time after borrowing a certain amount of money. This is the most common type of loan in Nigeria, the minimum loan amount is usually ₦10,000 and the upper limit for a new customer is ₦50,000 with no collateral, or a guarantor required although some lenders require you to add the name and phone number of a valid guarantor. Interest rates are set on several, which are repayment history and the cost of lending.
- Verified social media account.
- Valid bank details
- BVN number
- Have an official email address
It may look too easy and unreal but you are expected to pay back in 15 – 30 days or you will no longer be able to apply for another loan. Most times, the borrower is blacklisted as a “bad debtor” which means you won’t be able to borrow from another lender.
Monthly Payment Loans
This is a type of loan that allows you to repay gradually. Additionally, it is programmed in such a way that you repay a fixed amount every month depending on the loan principal and interest with the repayment dates scheduled at the start of the loan. This is usually accessible through banks in Nigeria.
Interest rate varies for each financial institution but the most common eligibility criteria is that you must have an account with them and also have steady monthly income for at least three months.
Salary Advance Loans
If you are in a compressed situation and need money swiftly, salary advances from your credit card company or other payday loan institutions are an option. It is usually short term, for small amounts with extremely high interest rates and fees. These loans should only be considered when there are no other alternative ways to get money. This is available to staff with active salary accounts domiciled in the bank.
Some features for salary advance loans in Nigeria include:
- Minimum monthly salary – ₦15,000 – ₦50,000 depending on the employment sector.
- Maximum loan amount – 50% of monthly salary.
- Maximum loan tenor – 12 months.
- Salary domiciliation – 1 month.
While others are:
- 24/7 service via the App or USSD code.
- No documentation required.
- No collateral required.
- 6 months’ tenor.
You may not know it but there is such a thing as student loans in Nigeria. Student loans in Nigeria are designed to help finance college education and the associated fees, such as tuition, books and supplies, and living expenses. There are three basic ways you can pay off your student loans:
- You can choose to put off payments until after you’ve graduated. This means you usually don’t have to pay the loans back while you are a full-time college student. In the long run, these loans can add up in the course of four, six or eight years, leaving new graduates with huge debts as they embark on their new careers.
- While you are in school, you can make interest payments. With payments as low as ₦10000 or you can cover the amount of interest that is accruing on the loan. After graduation, you will then begin making full payments on the principal and interest. This saves you a lot of money over the lifetime of your loan.
- You can make full payments on both the interest and the principal while you are in school. Although this can be difficult since you requested for a student loan because you need help paying for college. Nevertheless, if you can make full payments on your loan while you are in school, you can save a significant sum of money over the course of your loan.
A mortgage loan also a home loan should be your loan option if you are looking to purchase your first home or some form of real estate. This is a type of secured loan in which the house or property you are buying is used as collateral. That means if you are unable to make payments, the bank or lender can legally repossess that property to cover their expenses.
In Nigeria, mortgages are accessible through banks and the country’s National Housing Fund. The mortgage loan is made up of three components: collateral, principal, and interest. In Most cases, you are also needed to take out an insurance policy on the property you have purchased when you are given a mortgage.
How to Apply for Home Refinance Loan
- Complete your bank’s Consumer Loan Application form which you may download online or pick up from any of our branches
- Submit your application including the following if you wish to purchase residential property, to the Customer Service Officer in your branch:
— An offer letter from the vendor
— A copy of the land title documents
— If necessary, a copy of the approved building plan
— Photographs of the property accompanied by a valuation report
— A bank statement for the foregoing 9 – 12 months
How to Apply for Home or Land Acquisition Loan
- Complete your bank’s Consumer Loan Application form which you may pick up from any of our branches
- Submit your application if you wish to purchase residential property including the following to the Customer Service Officer in your branch:
— An offer letter from the salesperson
— A letter of authority from the salesperson to the estate agent or solicitor of the property
— A formal instruction from the applicant to the salesperson instructing him/her to release the title documents to the bank
— An undertaking from the salesperson or agent or solicitor to submit valid title documents directly to the bank
— An adequate search report on the property from a bank approved lawyer
— The original of the purchase receipt
— The survey plan
— Executed documents
— A valuation report and photographs of the property
— A bank statement for the foregoing 9 – 12 months
— A copy of the title documents, which should be in the salesperson’s name
— If necessary, a copy of the approved building plan
— Copy of the land title documents – ownership should be in your name
— A copy of the approved building plan
— A copy of the Bill of Quantities
— The construction timetable
- Loan amount of 150 million naira – 500 million naira for individuals and 5 billion naira for corporates
- Up to 15 years and subjected to longer tenor
- Applicant must be between 21 and 65 years
- Interest rate between 15% – 19% per annum.
- Applicants must have a minimum monthly salary of ₦250,000 – ₦350,000. Your spouse’s salary can also be considered*
- Equity Contribution of 20%.
Fixed Rate Loans
These are loans in which the interest rate charged on the loan remains fixed for the loan’s entire term, never mind what market interest rates are. This will result in your payments being the same over the total term. This could be any of the types of loans explained in this article.
- Some benefits of fixed rate loans in Nigeria include:
Flexible tenure up to 60 months of repayment period
- As low as 1.083%interest rate per month
- Borrow up to 20 Million naira personal loan with no security required
Variable Rate Loans
Variable rate loans also called adjustable-rate loans fluctuate based on the changes of an underlying interest rate index typically the prime rate. Interest rates on these loans usually have upper and lower limits, which it cannot move beyond within a time frame but the rate can change multiple times during a year. The interest rate on a variable-rate loan may originally be lower than a fixed-rate loan, but it could move higher over time.
These are loans repaid with a set of scheduled payments. That is, you borrow and pay moderately. Instalment loans could span over a few months and up to 30 years. A good example is a mortgage.
How to Apply Online
For some Lending platform, all you need to do is the following:
Input your monthly salary amount on the loan calculator to get a receipt of the amount of funds that you are eligible for.
Input all required documents and information on the registration page which includes;
- Means of Identification- Driver’s License/National I.D card/International Passport
- Company ID card or Employment letter
- Three – Six months’ recent bank statement of account showing previous salaries
For approved applications, applicants would be redirected to the website of the payment merchant to input bank and card details for immediate disbursement of funds.
While for others:
- Select collateral type: Here, you will be required to select either a jewellery or a vehicle from the collateral type dropdown menu.
- Collateral verification: You are required to take your collateral to the required addresses:
- Custody of collateral: Should your collateral be accepted, and the loan disbursed, your collateral will be in our custody until your loan is fully paid.
Convertible loans are flexible loans – that can be changed from a fixed to a variable rate and vice versa. They could begin as a fixed-rate loan but later shift to variable loans.
This is possible to achieve with your bank depending on the situation. An example is an adjustable-rate mortgage that can be converted to a fixed-rate loan.
Creative Sector Loans
This is a Central Bank of Nigeria initiative aimed at employment creation and capacity building for individuals and businesses presently into any of these:
- Information Technology
- Movie Production
- Movie Distribution
- Software Engineering Student Loan
- Be a part of the creative industry as listed above.
- Registered with the Corporate Affairs Commission
- Submit a comprehensive business proposal
- Clean Credit Bureau Report with no unpaid obligations
- Satisfactory CRMS report of owners, sponsors and directors
How it works
- Construct your business plan on how much you want for your business.
- Apply online through the Creative sector loan portal or go to your bank’s branch with the above mentioned document
- The bank’s relationship officers will contact you for further conversation and process your loan request.
- The maximum interest rate of 9% per annum (all charges inclusive) is applicable on all loans.
- The repayment period is a maximum of:
a) 3 years for Software Engineering Student Loans
b) 10 years for Fashion, Information Technology, Movie Production & Distribution and Music.
Borrowing money is never that simple. Before borrowing, carefully consider why you are borrowing and how you are going to repay the money. Borrowing is certainly not bad if it helps to make you better off, not worse off, in the long run.
Repayment and Interest Rate
Usually, the higher the interest rate on loan, the longer it will take to pay off the loan – when choosing loan policies, it is crucial to consider repayment span and interest rates. The interest rate can either be a simple or compound interest basis.
Simple interest is a calculation of interest that does not implement the effect of compounding. In most cases, interest compounds with each chosen period of a loan, but in the case of simple interest, it does not.
Simple interest can be calculated thus: principal amount multiplied by the interest rate, multiplied by the number of periods.
While compound interest is the inclusion of interest to the principal sum of a loan or deposit. The borrower does not only pay interest on the principal amount, but also pays interest received on both the principal amount and on the accumulated interest.
This is a common occurrence with borrowers in Nigeria as most lenders use compound loan policy. It is favourable for the lender as the interest rates paid on loans are also a primary source of income for the bank or financial institution but works against the borrower since interest accumulates overtime.
Repayments Failure or Late Payments
Aside from extra interest, your credit report will be affected if you fail to repay your loans or make late payments – which could make it difficult for you to obtain loans or mortgages in the future.
It is important to take into account that uncontrolled borrowing may have serious repercussions on one’s financial health which can result in stress. Moreover, when borrowers take out new loans to cover existing debts, or If borrowing becomes a habit, their financial situation might become unmanageable, and their problems can spiral out of control.
Borrowing money has become easy but it is advisable to apply for loans on a strictly ‘need to’ basis, and not see them as a regular financial solution – to avoid getting side-tracked and lost in a cycle of repayment and debt.
It is clear that fintech businesses are leading when it comes to accessing instant loans as they continue to improve and update their services in respect with customer’s needs.and answering the question ‘where to borrow money in Nigeria’ with platforms like Social Lender.
Loans are also useful for the economy because by lending to new businesses; there is an opportunity for healthier competition, which in turn increases overall cash flow in the marketplace.
We have outlined where you can get loans in Nigeria and hope you can think seriously before taking out any loan to avoid debt.