Major Types Of Loans Available In Nigeria (2022)—This article discusses the many forms of loans that will be available in Nigeria in 2022. It may interest you to learn that numerous types of loans are available in the country nowadays, depending on the terms and circumstances offered. Knowing about them and their distinctions will assist you in making critical decisions about which one you truly require at any given time in order to prevent plunging yourself into massive debts that will harm you for years to come.
According to Wikipedia, lending is the act of one or more persons, organizations, or other entities lending money to other individuals, organizations, or other entities. The recipient (that is, the borrower) incurs a debt and is often responsible for the interest on the debt until it is repaid in addition to the primary amount borrowed. Individuals or businesses take loans to meet specific financial demands, which they must repay with interest over a specified/agreed period of time between the lender and borrower.
Certain loans, however, may be granted provided the borrower agrees to offer the lender collateral, such as a property, and this agreement will be documented in writing in the loan instrument to avoid future legal complications. People do not accept loans carelessly; they carefully weigh the benefits and drawbacks before proceeding, and loans are taken for a variety of objectives or reasons, including but not limited to the following: business, real estate investment, education, medical bills, and vacation, to name a few.
As previously stated, repaying a loan entails repaying the principal plus interest agreed upon by both parties. The interest rate can be constant throughout the term of the loan arrangement, i.e. it can be fixed, or it can fluctuate over time, i.e. it can be variable. Interest rates are reduced if the borrower secures the loan with collateral such as a home, land, or other valuable items.
ELIGIBILITY FOR LOAN AGREEMENTS IN NIGERIA
The following are the current eligibility requirements for loan agreements in Nigeria. They include the following:
- Possess an operational bank account
- Maintain mental fitness
- Possess legal capacity
- Possess credibility/trustworthiness
- Possess a favorable credit rating
- Comply with the Know Your Customer (KYC) regulation
- Capable of repaying the loan amount within the agreed-upon repayment time.
MAJOR TYPES OF LOANS AVAILABLE IN NIGERIA (2022)
In no particular order, these are the major types of loans available in Nigeria in 2022:
As the name implies, a secured loan is a sort of loan agreement between lender and borrower that requires the presence of collateral to act as security prior to the agreement being formalized. To secure this loan, the borrower must provide valuable collateral to the lender as part of their agreement, and failure to repay the loan within the specified time period gives the lender the legal right to seize the collateral.
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The lender may sell the collateral to recoup the amount lent to the borrower if the borrower fails to repay on time. Naturally, all of these will be documented for historical purposes. Secured loan applicants frequently borrow significant sums at cheaper interest rates because they have collateral worthy of the type of loan they are requesting from the lender. The loan can be repaid over an extended period of time if both parties agree.
Because this sort of loan agreement does not require security, the interest rates are typically high, as the lender is taking a significant risk with the borrower. Unsecured loans, sometimes known as personal loans, are not backed by any collateral. As previously said, those who obtain this form of loan are obligated to repay it with interest, which will be documented in writing for legal purposes. Failure to repay on time may require the lender to bring a lawsuit against the borrower in a competent court of law to recover their money.
LOANS WITH ONE PAYMENT
Single payment loans demand borrowers to apply for a loan in a certain amount and repay it in full on the agreed-upon date. Borrowers are not required to pay interest on this form of a loan.
LOANS WITH MONTHLY PAYMENTS
This sort of loan asks the borrower to repay a portion of the loan amount in monthly installments, plus interest. Dates of repayment are specified at the commencement of the loan.
LOANS FOR SALARY ADVANCE
Salary Advances are small, unsecured loans for a limited period of time that rely on the borrower’s previous payroll and employment records. As a beneficiary of a Salary Advance, you repay it either with your next paycheck or over an agreed-upon time period.
A mortgage is a loan obtained specifically for the purpose of purchasing a home. A mortgage lender or a bank provides this loan to enable an individual to purchase a house. The loan must be repaid within the stated time period, and the borrower must secure the lender with collateral. In Nigeria, mortgages are composed of three components: principal, interest, and collateral. The main is the sum borrowed to acquire a home, the interest is money paid on a monthly basis at a specified rate for the use of borrowed funds or for deferring payment of a debt, and the collateral is the asset(s) used to secure the loan.
When you apply for a mortgage, the property you have purchased becomes collateral, and if you do not repay your obligation in full by the due date, the lender, who in this case may be a bank or building society, has the legal right to seize the property. If, on the other hand, you are able to return the loan in full when it is due, the property becomes yours outright.
FIXED INTEREST RATE LOANS
A fixed interest rate loan is one in which the interest rate remains constant throughout the loan’s fixed-rate period. This ensures that the borrower can forecast their future payments accurately.
VARIABLE INTEREST RATE LOANS
Variable interest rate loans are a type of loan in which the interest rate fluctuates in response to market interest rates. Unlike a fixed-rate loan, which has a fixed interest rate, a variable rate loan has variable monthly payments that fluctuate in response to market interest rate changes.
According to Investopedia, an installment loan provides a borrower with a predetermined amount of money that must be repaid in regular installments that may or may not be monthly, depending on the terms agreed upon by the parties.
Each installment payment on an installment debt involves both returns of a portion of the principal borrowed and interest on the obligation.
A convertible loan is a loan that can be repaid or, in most situations, converted into equity (assets without obligations or liabilities) at a later period.
However, this article has been helpful in compiling the major types of loans available in Nigeria.