A personal loan is a structured loan available only for personal borrowing. All retail banks offer loans of this type. The customer borrows an agreed sum and pays back in regular installments including interest at a rate, which is fixed at the time the loan is arranged. There are rarely any separate arrangement fees or other costs, though banks often quote repayment figures, which include premium for insurance to cover sickness or loss of job. We all know that personal loans in Nigeria are incredibly difficult to access.
Personal loans are promoted in a variety of forms often directed at different market segment. Common examples includes car loans and home improvement loans , though some banks emphasize more explicitly that personal loans are for any purpose the customer chooses.
ADVANTAGES OF PERSONAL LOANS
Advantages for the bank
- Quotations can be provided easily (from standard tables of repayments).
- Decisions can be credit scored from application forms.
- Procedures for opening the account and recording details on computer are straightforward.
- Repayment can be automated (from the customer’s current account)
- Monitoring the loan is easy.
- Opportunities arise for selling other services, in particular insurance.
Advantages for the customer
- Arrangements are easy.
- Repayments are known in advance which helps with budgeting.
- There are no cost increased even if other interest rate rise.
DISADVANTAGES OF PERSONAL LOANS
Disadvantages for the bank
- Rates charged are the same irrespective of the credit-worthiness of the customer
- Customers with personal loans cannot be charged more if there is a rise in interest rates.
Disadvantages for the customer
- If interest rates fall it may be difficult to switch to cheaper borrowing.
ADVICE FOR PERSONAL LOANS IN NIGERIA
Here’s what you need to think about before you borrow and how to make sure you get the best deal of personal loans in Nigeria.
1. Shop around
As with any financial product, when it comes to taking out a personal online loan it pays to shop around and compare APRs. The APR (annual percentage rate) tells the true cost of a loan taking into account the interest payable, any other charges, and when the payments fall due.
Your bank may say it offers preferential rates to its current account customers but you might still find there are cheaper loans available elsewhere. Go on the Loan search page to find the best rates.
2. Check the small print
Before you apply for a loan, check the small print to see if you’re eligible. Some best buys come with some onerous conditions. Access and Diamond only offer their best loan rates to current account customers.
3. Think about early repayment charges
It might seem unlikely at the time when you take out a personal loan – but don’t forget that it’s possible you will be able to pay off your debt early. Many loan providers will apply a charge if you wish to do so, so it’s a good idea to check how much this might cost before you apply for a particular deal. If you think there is a good chance you will want to settle your loan early, it may be worth searching for a deal that comes without any early repayment charges.
4. Check out peer-to-peer lending
If you’re anti-banks you might want to borrow from a peer-to-peer lender such as Imeela. The site, “a marketplace for social lending”, links borrowers and lenders. Applicants are credit scored and you need a decent score to be accepted.
5. Don’t apply for too many loans
When you apply for a loan online, most applicants will leave a “footprint” on your credit record which lenders check before approving a loan. Having lots of applications on your record makes you look desperate or in financial difficulties. As a result lenders will see you as more of a credit risk, so your latest loan application is less likely to be approved.
6. Know the risks of secured loans
Secured loans are cheaper than unsecured loans but you run the risk of losing your home if you don’t keep up repayments. Secured loans are only offered to homeowners with equity in their property and mean the lender effectively takes a charge on your property. So don’t sign-up unless you’re 100 per cent sure that you will be able to meet your repayments – this type of loan is basically less risky for lenders but more risky for borrowers.
7. Know the loan fees
The loan fees in Nigeria vary by each individual lender. Every lender should be able to give you an estimate of its fees. You should ask what each fee includes and an explanation of any fee you do not understand.
8. Early repayment fees
You can pay off your debt before the end of the loan term if you come into some cash. But watch out for early repayment fees. Many lenders levy a penalty for early repayment, which could wipe out any potential interest savings.
9. Arrangement fees
Some lenders charge arrangement fees, which can bump up the cost of credit. You should also beware of any early redemption fees should you choose to clear the debt before the end of the loan term
10. Late fees
Most personal loans in Nigeria companies come with fees for late or missed payments.