If you are like most people, you must have found yourself in situations where you needed more money than you presently have. Luckily, you don't have to wait for years to save enough cash to deal with the issue: you can approach your bank or other financial institutions for a personal loan.
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Personal loans are fixed-interest loans that you can take for various purposes and repay over time. Personal Loans usually have lower interest rates and higher limits than credit cards. They allow the borrower to use the funds for several things, such as home improvement projects, vacations, weddings, rent, or other significant expenses. Personal loan interest rates are usually higher than secured loans (such as mortgages) but lower than unsecured credit card borrowing. You can get personal loans from banks, cooperative societies, Fintechs, and online lenders.
Personal loans are different from business loans because they are meant for individuals to use any way they see fit. When shopping for personal loans in Nigeria, you are limited to two basic types- Unsecured Personal loans and Secured Personal Loans.
This is the type of Personal Loan standard with commercial banks. Unsecured personal loans are not backed by security or collateral like your car or home. Instead, the lender ensures that the borrower's income is regular and from a reliable source. Some banks will only lend to salary earners who have already been pre-qualified based on the financials and structure of their employers. The borrower's employers must also write to the lender that they have domiciled the borrowing employee's salaries to a specified salary account with the lending bank.
Depending on the lender, the tenor or period for this personal loan can be from 12 months to 72 months. Interests rates vary depending on the borrower's risk profile, sector, and employer, ranging from 12% to 26% P. A.
Some banks and online lenders offer short-term unsecured personal loans, usually ranging from 3 to 6 months which can be assessed through their banking app and does not require any documentation. You don't even need to have a salary account domiciled with them. However, the limits are far lower.
These are secured with physical assets such as houses, cars, or electronic appliances. Alternative lenders mainly offer this type of personal loan, and the borrowers typically are those who do not qualify for Personal Loans from the traditional banks and lending institutions. The security for the loan has to have a higher value compared to the loaned amount so that in the event of a default on the payment, the lender can sell the asset to offset the outstanding loan balance.
When your bank approves a personal loan for you, you read and execute the offer letter after meeting their terms and conditions. The money is paid into your account as a bulk sum after the lender has collected the associated fees. The lenders will debit your account on a scheduled day of the month for a fixed monthly payment which is part principal and part interest. As a rule of thumb, the fixed monthly instalment should never exceed 33.3% of your monthly salary, except for a few exceptions.
You will continue to pay this fixed amount till the expiration of your loan tenor. But you can pay down the loan partially or totally if you so wish.
Also, the lender can vary interest rates during the tenor of the loan. This change in interest rates is done to reflect the monetary market changes. However, the lender ensures the borrowing customers are duly notified whenever interest rates are changed.
If for any reason, you default in making your monthly payments for your loan, the lender will commence recovery actions which may include but are not limited to filing a lawsuit against you to collect the outstanding loan balance. For a secure loan, the lender will take over the pledged security.
Other repercussions include a bad or unfavourable credit report which will stop you from borrowing money elsewhere.
To qualify for a personal loan, your income must be high enough to pay back the loan with interest. For most lenders, you must be in paid employment before they can consider giving you an unsecured personal loan.
You must have clean credit reports across the credit bureaus - CreditRegistry, FirstCentral, and CRC Credit Bureau.
You must be 18 years or older to be eligible for a personal loan and not more than 60 years. Note that 60 years is the general retirement age, and lenders ensure that a borrower's loan tenor doesn't go past his sixtieth birthday.
Personal Loans have requirements for applicants when they apply to obtain a personal loan. To get approved for a personal loan, you must show financial history that proves your ability to repay the debt and meet all requirements set by the lender.
Personal Loan requirements differ for each personal loan provider. However, standard requirements when applying for a personal loan with banks and other lenders are submitting an application that includes:
A bank or lender may deny a personal loan application if the borrower doesn't meet all the requirements.
First, you must decide if a personal loan best serves your specific purpose. For example, if you want to get a car, your bank will give you a car loan, and the interest rate is typically lower than that of a personal loan. Then, you can shop around for the lender with the best interest rate and fees.
A helpful tool to help your compare personal loan offers is the APR or Annual Percentage Rate. The APR represents the annual interest and fees charged on a loan. It gives the lender an idea of what the loan will cost him in a year. The Central Bank of Nigeria has made it mandatory that lenders disclose their APR to prospective borrowers.
Decide on how much you want to borrow. Bear in mind that you'll be repaying the loan at a cost and should only borrow what you will need. Also, ensure you can meet up with monthly repayments so you don't overextend yourself.
Personal loan companies and banks require personal loan applicants to submit personal information and paperwork when applying for a personal loan.
Loan applications and supporting documents usually must be submitted online or in person at a personal loan company or bank branch. The loan application processing time generally takes a few days, and the lender will notify you once it's approved.
A personal loan is beneficial when you need to make a significant and necessary expense. Borrowing money for frivolities will only hurt your finances and derail your long-term financial goals. Therefore, you must be circumspect when deciding to borrow.
Lastly, before your sign on to an offer, ensure you carry out your due diligence and get the best rates, fees, and terms.
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