According to the CBN Weighted Average Interest Rates charged by banks in the first half of 2017 was 23.79%. The banking sector provided a total credit of N63.27tn to finance the activities of the private sector in 2017, according to figures from the National Bureau of Statistics. This rate means getting a loan in Nigeria with bad credit is very difficult and prohibitively expensive.
Lenders make money on loans by charging customers interest and fees. Interest is calculated as a percentage of the amount borrowed. The cheapest loans are often reserved for those with high credit scores and you need to ensure you can keep up the repayments before applying. There are many ways to calculate interest payments. Companies vary based on the amount of interest and fees they charge.
Credit record
The interest rates on personal loans depend partly on the loan amount and term. But lenders also assess your credit worthiness, usually by looking at your credit file. The lowest rates are reserved for the best customers – that is, borrowers with a spotless credit record.
If you are judged likely to default on the loan because of a poor credit history, you will be charged a higher rate of interest or your application will be turned down.
In other words, there is no guarantee that you will qualify for the advertised rates. Lenders are allowed to boast of low representative rates if those rates are charged to 51% of successful applicants, which means almost half could be charged a higher rate.
- High interest loans: Some personal loan companies charge high-interest rates, which encourage customers to repay loans quickly. Certain ‘pay day’ loans offer money with very high interest rates to tide you over until your next paycheck.
- Low interest loans: Many personal loan companies offer customers low-interest rate loans, which are often used to refinance debt with higher-interest rates. For example, if you have 3 credit cards which charge an average of 20% interest, you may want to pay off the balance due on those cards with a personal loan that has a lower interest rate of 12%. In general, to qualify for a lower interest rate, the borrower needs a credit score above a specific level.
- Varied interest rates: Many personal loan companies charge a wide variety of interest rates, which differ based on who is borrowing the money and how long it will take them to repay the loan. In general, borrowers with higher credit scores are charged lower interest rates. Additionally, smaller loans usually have higher interest charges.
What constitutes bad credit?
If you’re considered to have ‘bad credit’, you may have missed repayments in the past, or even have a bankruptcy against your name.
There is a big difference between ‘bad credit’ and ‘no credit’ – the latter is when you haven’t ever taken on any form of loan and so have no credit history behind you.
However, a dose of bad credit doesn’t mean lenders will automatically slam the door on you – but it will mean your options are limited, with higher interest payments than you’d be subject to if you had a squeaky clean credit history.
Is it possible to improve your credit history?
There are simple ways to improve your credit score. These include making sure you submit your data to StartCredits for your loan consultation.
Also, space out your applications for credit as each will leave a ‘footprint’ on your file – and if you’re rejected, this makes the next lender less likely to accept you. When you do get credit, make sure you keep up repayments to gradually rebuild a tarnished credit history.
There is a big difference between ‘bad credit’ and ‘no credit’ – the latter is when you haven’t ever taken on any form of loan and so have no credit history behind you.
Types of loans you won’t get with bad credit
You won’t be able to apply for the best buy loans available, so those with the most attractive terms and rates. These are likely to be reserved for borrowers with clean credit histories.
Types of loans you’re likely to be approved for
However, there are lenders that offer ‘bad credit loans‘ to people who seem a greater risk because of their poor credit history – although these tend to come with higher rates and lower limits.
The greater the risk you are perceived to be by the lender, the more interest you will pay and the greater the restrictions you’ll face. However, bear in mind that your credit history isn’t the only consideration when providers decide to lend you money. They also take into account your job, salary, stability and other assets you might have, such as a property.
Pros and Cons of high interest loans
While you might face hefty interest charges, taking on a high interest loan gives you the chance to rebuild your credit profile by demonstrating that you’re a trustworthy borrower. If you are willing to take a disciplined approach to repayments, this route could work for you getting a loan in Nigeria with bad credit.
When you are granted a bad credit loan and start paying it back you will be on the path to repairing your credit history.
However, the clear con is the high rate – so think carefully about whether you’re willing to accept this and can afford repayments before making an application.
Conclusion
Studies have shown a relationship between monetary policy and credit to private sector. The rate charged to borrowers had a spread of 7.9% spread to the standing lending facility rate of 16%. The rate on the Lending Facility acts as the ceiling of the corridor because, in theory, no banks should be willing to borrow at a higher rate in private funding markets. As such the spread of 7.9% largely comprises of idiosyncratic risk/personal risk of the borrower. The analysis suggests the rate of the lending facility may be a barrier to lower rates, as in comparison to the Chinese Lending Facility rate, which stood at 3.1% in the period.
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