Personal loans are the most common type of loan in Nigeria as Nigerian use them to finance various needs continuously.
With CreditNigeria, you can find the best personal loans from multiple lenders and compare to find the most suitable loan option for you with one simple application.
Personal loans in Nigeria
A personal loan is a loan obtained to be used for personal purposes.
A personal loan can be used for many purposes including but not limited to medical expenses, home renovations, debt consolidations, and many more.
Personal loans can be divided into two categories:
- Secured personal loans
- Unsecured personal loans
Secured personal loan
A secured personal loan requires the buyer to offer collateral as part of the terms of the loan.
The collateral is any valuable property owned by the borrower that can allow the lender to recover the money lent to the borrower in case the borrower cannot pay back the loan in cash as agreed.
This collateral is untouched if the borrower abides by the terms and conditions of the loan and repays the loan in the agreed instalments on time, but is taken away by the lender if the borrower cannot keep up with the payments as agreed in the terms.
If a borrower obtains a secured personal loan for a mortgage, the collateral is the house. If the loan is taken for a vehicle, the vehicle is the collateral. In the case of default, the lender takes possession of the house or the vehicle as the case may be.
Some advantages of secured personal loans include:
- Low-interest rates
- Less competitive to obtain
- Higher borrowing limits
Some disadvantages of secured personal loans include:
- Need for collateral as the average borrower does not have access to suitable collaterals
- Pressure to repay is higher
- Very risky for borrowers
Unsecured personal loan
Unsecured personal loans do not involve collateral.
Some advantages of unsecured personal loans include:
- No need for collateral to qualify for the loan
- Pressure to repay is lower
- Less risky for borrowers
Some disadvantages of personal loans include:
- High-interest rates
- Lower borrowing limits
- Very competitive to obtain
Types of personal loans in Nigeria
Since the types of personal uses can be almost endless, the kinds of personal loan in Nigeria is almost endless too.
It is however very important to ask lenders what their loans cannot be used for as most lenders have restrictions on the use of personal loans in Nigeria. Restrictions that if found to be broken nullify the agreed contract and may land the borrower that has violated the restriction in big trouble.
Some popular types of personal loans include:
- Payday loans
- Debt consolidation loans
- Medical loans
- Home improvement loans
- Car loans
- Wedding loans
- Travel loans
- Emergency loans
- Education loans
- Business loans
- Pension backed loans
- Consolidation loans
Payday loans are short-term loans that help consumers meet their needs before the next payday.
These loans usually come in small amounts which heavily depend on the salary of the borrower to enable them to be able to easily and conveniently pay back the loans when the next salary comes in.
A payday loan is a very convenient option to settle unexpected expenses for customers who do not have access to other sources of funding such as savings or a credit line. The application process for payday loans is relatively very fast and the interest rates are higher when compared to other kinds of personal loans.
Debt consolidation loans
These are personal loans collected with the sole aim of paying other loans. It offers a way to easily pay off multiple debts by combining them. This means that the monthly repayments will be lowered and joined into just one monthly repayment.
A debt consolidation loan can also help to save money on interest rates and charges while also making debts easier to track since it combines multiple debts into one.
It is always important to know, however, that even though a debt consolidation loan has many advantages, it also extends the life of your debt and increases the total amount of interest rate you will pay over the life of the entire loan.
Debt consolidation loans should not be taken lightly as they may land consumers in worse financial situations if they do not fully understand how to use them.
Medical loans help consumers pay medical bills that have not been covered by insurance. These expenses, often called out-of-pocket expenses, can be for surgeries, medicine, or even routine check-ups.
This type of loan is usually unsecured and lenders often offer flexible repayment options with varying interests and terms.
Medical loans are not a long-term solution to medical expenses and should be used with extreme discretion since the interest rates and fees add up over time.
Home improvement or mortgage loans
Home improvement loans are used to fund renovations, repairs, kitchen remodels, new roofs, and general upgrades to the home.
These projects often come with high costs which make it difficult for homeowners to finance them on their own, therefore home improvement loans offer the perfect solution to the upfront expenses of home upgrade financing.
A car loan is used to finance the purchase or repair of a vehicle.
Consumers can choose between secured or unsecured car loans which may come with fixed or variable interest rates with a repayment period of 2 to 7 years.
A wedding loan is a loan obtained to finance wedding expenses.
It can provide lump sums that can be used to pay for the wedding venue, catering, attire, photography, and other related expenses. These loans come with flexible repayment options and varying terms and conditions. It is advisable to save and earn income towards wedding expenses, as opposed to borrowing.
Travel loans are personal loans used to finance travel expenses.
It can be used to pay for flights, accommodations, transportation, and other travel-related expenses.
Emergency loans are loans that are obtained for all sorts of emergencies.
Since the nature of emergencies can be diverse, ranging from natural disasters to accidents, the nature of emergency loans is always diverse too with varying interest rates and terms and conditions.
Education loans are limited, as not all education finances can be taken care of by education loans.
Lenders usually restrict consumers from using education loans to pay tuition fees, while some may allow it.
Education loans are mostly used to finance accommodation, textbooks, and other related expenses. It is always advisable for consumers to speak with lenders to know the full extent to which they are allowed to make use of education loans.
These are loans that entrepreneurs and small business owners can obtain for their businesses in Nigeria. These loans can be used for a variety of purposes including the purchase of equipment, expansion of operations, employee hiring, or day-to-day expenses.
Business loans are usually offered by banks and microfinance institutions as well as other financial institutions. They can either be secure or unsecured and they come with flexible repayment terms and interest rates.
Pension backed loans
These loans are offered to individuals who are typically senior citizens and have access to pension funds. They are loans that are secured against an individual’s pension savings.
Individuals who qualify for pension-backed loans have to reach the minimum age for accessing their pension savings which are 65 years in Nigeria. This kind of loan is often used as a way for individuals to access their pension savings without reaching retirement age.
Interest rates for pension-backed savings are usually very high and they reduce the amount of money a consumer has for a retirement plan.
There are a variety of personal loans available in Nigeria which either fall under secured or unsecured personal loans.
Secured personal loans require collateral while unsecured personal loans do not. Each type of personal loan is designed to meet the specific need and is offered by different institutions such as banks, credit unions, online lenders, and microfinance institutions.
No matter the type of personal loan, it is always advisable to approach them with caution about the interest rates and terms and conditions.
Consumers must research their options to compare them and get the best package suited to their needs.
Use CreditNigeria to easily compare loan options for free and get the best loan packages from multiple legitimate lenders in Nigeria with one simple and fast application.
Frequently Asked Questions
What is the best type of personal loan in Nigeria?
A personal loan can be taken for many personal reasons none of which are better than the other. An individual who takes a personal loan to suit pressing needs will determine the best option at that time depending on the present financial needs.
Are there personal loans for minors in Nigeria?
Personal loans have a minimum age requirement of 18 years. Some lenders might even increase this age requirement from anywhere between 18 and 25. It is however possible that adults or guardians can take loans to use on behalf of minors.
What type of personal loan gives the highest amount?
This depends on many factors as different kinds of personal loans can offer varying amounts depending on your creditworthiness. If you are creditworthy and have an outstanding credit history, you may be eligible for a wide range of advances, as much as you want for any type of personal loan.
Can I use a personal loan to repay existing debts?
Yes. You can obtain a personal loan for debt consolidation to easily offset your debts. It is, however, useful to know that since you are taking a loan to offset debts you are essentially transferring the debt from your old creditors to the new ones which still brings you back to square one unless you find ways to make money to pay off your debts for good.
Can I use my loan for everything?
No. There are things that you cannot use personal loans for including but not limited to the payment of school bills, and there are also things that lenders do not allow their loans to be used for. It is always best to ask the lender what the personal loan offer can or cannot be used for to be on the safer side.