Building Credit

What is a Credit Score in Nigeria? A credit score is a unique credit rating system that shows lenders how risky it is to lend to an individual. Developed by the Fair Isaac Corporation (FIRC), an American data and analytics company, it helps individuals to know what their credit status is and lenders to make quick and informed decisions. Your credit score is dependent on the information on your credit report, which is your credit history over a period.

Credit score factors shape the credit score and the lower your score, the riskier it is for lenders. A credit score is basically a 3-digit number that has the minimum being 300 and the maximum, 850. In calculating the credit score, the following are the standard measures:
Excellent 800-above

1. Very Good 750-799
2. Good 700-749
3. Fair 650-699
4. Poor 600-649
5. Very Bad 300-599

How to Calculate Credit Score

The following factors form the basis for calculating your credit score

1. Payment History:

This refers to the degree of compliance with agreed payment terms. Ideally, it should be at 35% however, factors such as bankruptcies, late payments, and default in payment affects the outcome.

---

Get a loan up to N100,000 at the best affordable rates in Nigeria

Did you know that you can now you can compare interest rates from different lenders with our loan simulator and get the best deal? Making an informed loan decision requires comparing different loan offers before making a commitment. Through our simulator, you can see at a glance, loan offers coming from different lenders in less than 5 minutes, so you can make the right decision regarding your financing. Try it today

---

2. Amount Owed:

This takes into review the amount owed in your account, the number of accounts with balance, and the available credit. This rate is over 30%

3. The pursuit of New Credit: 

If you have recently opened a new credit account, the score will weigh against the rest of your credit history. The rate is over 10%

4. Length of Credit History:

You can achieve a good credit score with short credit history if the rest of the report shows your responsibility with credit. However, an extended credit history increases your credit score. The rate is over 15%.

5. Credit Mix:

Installment loans, credit cards, and personal lines of credit can slightly increase your credit score. The rate is over 10%.

 How to Access your Credit Score in Nigeria

Credit score plays a vital role in one’s financial life. It is a three-digit summary of your credit report, which determines your creditworthiness by outlining your credit activities for your entire history as a borrower. 

 If you have ever considered getting a loan, your credit score is what lending institutions evaluate to determine how safe or risky you are as a potential customer. Your credit score is dependent on your account activity. 

To access your credit score, you need your credit report because your ratings are dependent on information in your reports. A credit report includes details about your past and existing credit agreements. These include credit, loans, mortgages, debt collections, cards, whether you’ve made on-time payments for your bills, and the lists of businesses that have most recently viewed your credit history. These credit checks are inquiries.

How do I get access to a credit report in Nigeria?

As a Nigerian, you can get one free Credit report annually from any Credit Bureau registered in Nigeria. Here are the ways to get access to your free credit report:

1. Apply on the CRC Credit Bureau website. CRC Credit Bureau also has a USSD code (*565*8#) you can dial to check Credit reports instantly. You’d have to be an MTN subscriber to use their USSD option. You can check out this post for USSD code for loans in Nigeria.

2. You can also access a free credit report from the Credit Registry’s website. The Credit Registry offers a free report on an annual basis.

3. Get a free credit report from Carbon Paylater. Carbon also offers free credit reports to Nigerians. 

Do you need a loan? Be sure to visit this loan platform that allows you to compare loans from different lenders in minutes. It offers the best and ensures that you get nothing less.

 Conclusion

Knowing your credit score not only helps you take control of your finances but also makes you better prepared for applying for a loan in Nigeria. The credit score calculator is easily accessible, and you can purchase for N400 on the Credit Bureau website. We recommend that you check your credit score at least once a month. It is also important you learn about control, we have an article on it and you can read it here.

Microfinance banks (MFB) thrive on providing services to the “unbankable”. Therefore, they provide services to those that can’t access regular commercial bank services. Essentially, they cater to all the immediate and potential needs that one may have. Microfinance banks are mainly patronized by low-income earners, especially those without high-value asset which are needed to obtain loans from commercial banks. One of the major services provided by these banks is to salary earners. There are MFB that give loans to salary earners, allowing them to pay back some time later. 

This article is basically a rundown of the list of microfinance banks that provide loans to salary earners or salary advance. Therefore, if you’re looking to get one, simply select your preferred option from the list below. 

MFB that gives loans to salary earners 

The list of some of the most popular microfinance banks that give loans to salary earners are:

1. Lapo microfinance bank
2. Purple money microfinance bank
3. CIT microfinance bank
4. AB Microfinance bank 
5. Grooming microfinance bank 
6. Addosser Microfinance bank
7. Asset Microfinance bank
8. Bowen Microfinance Bank
9. Capstone Microfinance Bank
10. Cardinal Rock Microfinance Bank
11. Cashconnect Microfinance Bank Ltd 
12. Cedar Microfinance Bank
13. Chanelle Microfinance Bank
14. CIT Microfinance Bank
15. Corestep Microfinance Bank
16. Cowries Microfinance Bank
17. Credit Afrique Microfinance Bank
18. Credit Express Microfinance Bank
19. Crossover Microfinance Bank
20. Daylight Microfinance Bank
21. Desmonarchy Microfinance Bank limited 
22. Echo Microfinance Bank
23. Edo Microfinance Bank
24. Empire trust Microfinance Bank
25. Enrich Microfinance Bank limited 
26. FFS Microfinance Bank
27. Finatrust Microfinance Bank
28. Finex Microfinance Bank
29. First Option Microfinance Bank
30. Flourish Microfinance Bank
31. Fortress Microfinance Bank
32. Giant strides Microfinance Bank
33. Global Initiative Microfinance Bank
34. Glory Microfinance Bank
35. Green energy Microfinance Bank
36. Hackman Microfinance Bank
37. Headway Microfinance Bank
38. High street Microfinance Bank
39. GTI Microfinance Bank
40. IBILE Microfinance Bank
41. Ipodo-Ikeja Microfinance Bank
42. Island Microfinance Bank
43. Jessefield Microfinance Bank
44. Kayvee Microfinance Bank
45. Kudimoney Microfinance Bank
46. Lawebod Microfinance Bank
47. Leadcity Microfinance Bank limited 
48. Letshego Microfinance Bank
49. Lifegate Microfinance Bank
50. Links Microfinance Bank
51. Magnet Microfinance Bank
52. Main trust Microfinance Bank
53. Mainstreet Microfinance Bank
54. Manny Microfinance Bank limited 
55. Lovonus Microfinance Bank
56. Maritime Microfinance Bank
57. Sunrise Microfinance Bank
58. Supreme Microfinance Bank
59. Surbpolitan Microfinance Bank
60. Susu Microfinance Bank
61. Touchgold Microfinance Bank
62. Townserve Microfinance Bank
63. Treasures Microfinance Bank
64. TCF Microfinance Bank
65. Ultimate Microfinance Bank
66. VCL Microfinance Bank
67. Verdant Microfinance Bank
68. Verite Microfinance Bank
69. VFD Microfinance Bank
70. Wesley Microfinance Bank
71. Vineland Microfinance Bank
72. Virtue Microfinance Bank
73. XSLNCE 
74. YCT Microfinance Bank
75. Zikado Microfinance Bank
76. NPF Microfinance Bank
77. Okengwe Microfinance Bank
78. Oros Capital Microfinance Bank
79. Owotutu Microfinance Bank
80. Parallex Microfinance Bank
81. Parkway Microfinance Bank
82. Pecan Trust Microfinance Bank
83. Penny wise Microfinance Bank
84. Personal trust Microfinance Bank
85. Petra Microfinance Bank
86. Projects Microfinance Bank
87. Providence Microfinance Bank
88. Primera Microfinance Bank
89. Purple money Microfinance Bank
90. Rhehoboth Microfinance Bank
91. Renmoney Microfinance Bank
92. Ric Microfinance Bank
93. Richway Microfinance Bank
94. Pyramid Microfinance Bank
95. Qube Microfinance Bank
96. Reliance Microfinance Bank
97. Rigo Microfinance Bank
98. Royal blue Microfinance Bank
99. Royal Exchange Microfinance Bank
100. Safe Gate Microfinance Bank
101. Seed Capital Microfinance Bank
102. Shalom Microfinance Bank
103. Shepherd Trust Microfinance Bank
104. Snow Microfinance Bank
105. Solid Allianze Microfinance Bank
106. Solid trust Microfinance Bank

Are there MFBs that does not offer salary loan services? 

Actually, most, if not all microfinance banks, offers loans to salary earners. It is a basic service offered by financial institutions, including commercial and microfinance banks. 

What are the eligibility requirements for applying for a salary earners MFB loan? 

The major eligibility requirement while applying for this loan is that your salary account is domiciled with the bank. Therefore, when your salary is paid at month’s end, they can easily deduct your loan repayment. Also, your salary needs to be up to a particular amount for you to access certain amount of loan. In all, they would present you with the available options during application.  

Conclusion 

If you are a salary earner looking for a loan advance, you can easily walk into any legitimate microfinance bank. More so, these banks offer loan services at competitive interest rates which varies from one bank to another. 

Over the years, different means of financing basic needs have grown in Nigeria. And one of these is Micro loans. Micro-loans are basically small loans that a borrower can access from individuals rather than financial institutions. Loans in this category work basically on what we call a peer-to-peer lending system. If you have cash problems, it is an excellent option to consider. This article covers all you need to know about micro loans and how to get them in Nigeria.

How does Micro Loans work?

Basically, as with any other loan types, microloans are targeted at helping individuals or businesses with financial problems. In most cases, it can also be an alternative if you cannot access traditional bank loans. The Majority of microloans operates basically in the form of a peer-to-peer loan or term loan. In addition, as the name implies, these loans are usually small and with a fixed amount.

With the peer-to-peer micro loan, you have access to loan provisions that a group of investors or multiple individuals make available. They make this loan available via a lending platform. And to get this loan, you have to meet up with their lending requirements. On the other hand, with the term micro loans, you have access to a specified amount made available by a lender. After securing this loan, the lender then expects that you pay back the principal, and the interest accrued over time.

Pros of Micro Loans:

• A micro loan is a good option if you are looking to take a small loan for your personal or business needs. Additionally, it can be very advantageous if you have taken a loan from a bank before.
• The requirements of a micro-loan are more flexible as compared to loans with traditional Banks.
• You might still be eligible for a micro loan, even if you do not have a credit history or credit score.
• The interest rate on micro loans is a bit lower compared to bank loans.
• Micro loans are approved very fast.

Cons:

• You have access to small loans.
• The repayment timeline is usually very short

How can I access Micro-loans in Nigeria?

There are several lenders giving out micro loans in Nigeria. Although the majority of them are Microfinance banks,, there are also some peer-to-peer lending groups giving out micro loans. Also, some years back the Federal Government of Nigeria started an initiative they call ‘TraderMoni’. They target this initiative by providing petty traders with Microloans to finance their business needs.

What document do I need when applying for micro loans?

Document requirements may vary from one lender to another, but here is a general requirement.

• Loan Application form
• Letter of Application(Individual)
• Bank Verification Number
• Valid means of Identification (National ID card, Driver’s license, International passport)
• Passport Photograph
• Excellent Business Proposal (Businesses)

Conclusion:

Micro loans are an excellent way to meet your personal and business needs. If you are an SME, you might need to turn to Micro loans. This is because traditional banks are not always willing to risk lending out to small businesses. Micro loans are easier to get and it does not require lengthy paperwork. You can also read about Ferratum and Quickteller loans

For most Nigerians, buying a car whether new or Tokunbo is a huge financial decision that often requires getting a loan. This is because only a few Nigerians can purchase a car conveniently without having to take a loan. If you are one of the many Nigerians that need a loan to finance the purchase of your dream vehicle, then you are on the right page. In this article, we have carefully reviewed some car loan companies in Nigeria.

List of car loan companies in Nigeria.

There are different auto-financing companies in Nigeria. The majority of these lending organizations are either independent or affiliated with notable banks in Nigeria. Here is a list of car loan companies in Nigeria.

1.     First Bank of Nigeria Auto Loan:

The First Bank of Nigeria (FBN) has designed this loan to help you purchase the car of your dream. Also, Businesses registered in Nigeria can also apply for this loan option to acquire vehicles for their day-to-day activities. The FBN Auto loan has a maximum loan amount of #15 million, a maximum tenor of 48months, and an interest rate of 22%. To find out about this loan option, visit their official website on www.firstbanknigeria.com

2.     Access Bank Group (Vehicle Finance)

The vehicle finance is a product of the Access Bank Group. They design this product to enable their customers to acquire their dream cars in a financially convenient way. To apply for this loan, all you have to do is visit their official website on www.accessbankplc.com . The maximum loan tenor is 48 months, and they finance only vehicles sold by the bank’s accredited dealers.

3.     First City Monument Bank ( FCMB Auto Loan)

The FCMB auto loan is a consumer credit scheme. It allows customers of the FCMB to own the dream car of their choice and conveniently spread the payments over a period. With the FCMB auto loan, you have access to about #500,000 to #3million. The tenor or payment is between 12 to 60 months, depending on the type of car and amount they borrow you. To learn more about this loan option, visit www.fcmb.com/auto-loan

4.     Cars45

This is an online marketplace for people who are looking to sell used cars. Asides from this, they also have car loan options to help customers finance the purchase of their vehicle of choice. They specifically design this loan option for income earners, who have a proven source of income. Their interest ranges from 28% to 48% depending on the vehicle you are purchasing, and they offer a maximum loan tenor of 18 months. To learn more, visit www.cars45.com.

5.     Creditville

Creditville is one of the notable digital lending platforms in Nigeria. They provide soft loans to their customers to cater to their various needs. Asides from this, they also offer auto loans to their customers. They design this product to enable the purchase of their vehicle of choice easily. To apply for the Creditville car loan, all you need to do is visit their official website on www.creditville.com. Fill the online car loan form, their agent will contact you if they approve your application.

Please note, the Creditville auto loan is not available for commercial purposes. Just like other lending organizations, this loan option is only available for personal use.

6.     United Bank of Africa (UBA Auto loan)

UBA is one of the top guns in the Nigeria Banking Industry. Over the years through quality customer experience and service, they have risen through the ranks. They design the UBA auto loan option to help customers upgrade their car to a higher model or to purchase a new one. This option provides customers with a maximum loan amount of #15 million and a maximum tenor of 48 months. To learn more, visit www.ubagroup.com.

Conclusion:

The joy of having the car of your dream and becoming a car owner is incomparable. If you are looking to finance the purchase of your dream car through auto loans, you can leverage any of the institutions we have listed in this article.

Union bank is a household name in the banking industry of Nigeria. For your financial progress, they offer a wide range of loans to make your plans and visions a reality. Their loan process is straightforward and caters to the needs of all categories of individuals, including salary earners, pensioners, and entrepreneurs. Read on to find out about their loan services in detail.

What union bank loan services are available?

They categorized Union bank loans into three major categories, they are:

Payroll loans:

 payroll loans are for those whose salary account is domiciled with union bank. As a deal sweetener, you even get a cash reward for paying back in time. However, this only holds for loans with a tenor within 2 to 5 years. The available packages under payroll loans are:

Personal loan: 

this loan provides up to N15 million for you to settle your personal needs. It has a maximum tenor of 5 years and is only available to employees whose salary account are domicile with the bank.  

Salary advance: 

this provides up to 50% of your salary up front and has a maximum tenor of 12 months. To qualify, your salary account must have been domiciled for at least a month with union bank.

Back to school finance: 

every parent needs to send their child to school, and salary advance ensures that is possible. It offers up to N15 million tuition loans for you to pay your child’s school fees, with a maximum tenor of 12 months.   

Senior citizen loan: 

as a retired personnel, you can get up to N10 million to finance your personal project and payback over a period of 5 years.  

Union flexi loans: 

lastly, this loan is available only to those who earn up to N30 million per annum. If you do, you can obtain up to N50 million, and pay within 60 months.

Digital loans: 

they put digital loans in place in case you need quick cash. Therefore, it saves you the stress of hurrying around for money when tight. It is basically a payday loan where you can access up to 50% of your salary and payback in a month.

Features

• Maximum tenor of 30 days
• Minimum monthly salary of N15,000
• Maximum loan amount of N100,000
• Your salary account must have been domiciled for at least 3 months
• Loan limit of 50% of your total salary 

You can access the loan through the following means:

• Union bank ATMs
• USSD dialing of *826*41#
• Union bank mobile application

Non payroll loans: 

this is for the self-employed individuals and SMEs owners. There are different services under non payroll loans that help you meet your financial needs. The services are:

• Self employed loans
• Self employed revolving overdraft
• Cash backed loans

How do I apply for a Union bank loan?

To apply, simply follow the process below:

1. Visit their official loan page at https://www.unionbankng.com/loans/#here-are-ways-to-access-the-payday-loan
2. Select your preferred loan and take note of the details and documents required
3. Click the apply for a loan button at the bottom of your preferred loan
4. Fill the online form that follows next and click submit

Conclusion

Union bank remains one giant in the industry and boasts numerous years of offering excellent customer services. Their loans are easy, quick, and accessible by anyone. It also caters to the needs of employees, SMEs, and tech-oriented customers. 

There is a longstanding debate on the dominance and use of credit cards in Nigeria. However, it holds that its use by individuals and businesses is relatively low when we analyse the international scene.

In this post, we’ll be going through what credit cards really are, and the top companies in Nigeria where you can get them.

What is a Credit Card?

A credit card is a plastic card that lets you access the credit limit your card issuer gives you.

A credit limit is like a loan. However, instead of giving you cash, the bank permits you to take as much credit as you desire for a period and then allows you to reuse the loan over and over and pay it back later.

How Does Credit Card Work in Nigeria?

A lot of processes go on during a credit card transaction. When you swipe your credit card to make a purchase, the merchant’s card terminal asks your credit card issuer whether the card is valid and if you have enough available credit.

Your card issuer sends a notification of the approval or rejection of the transaction. If it’s approved, you can take the goods and services and go on your way.

Every time you make a transaction, your credit goes down by that same amount. If you have a ₦100 credit limit and you make a ₦25 purchase, you’ll have ₦75 available credit remaining. You’ll be owing the bank ₦25.

If you borrow another ₦50 before paying back the ₦25 you borrowed, you would owe the bank a total of ₦75 and have ₦25 in available credit.

The difference between a credit card and a typical loan is that your limit is available after paying the balance on the card.

In the earlier example, if you paid back the ₦75 that you owed, you’d have ₦100 of available credit again.

Credit Card Companies in Nigeria

1. First Bank Nigeria

With a First Bank credit card, you can make everyday purchases, consolidate your borrowing, and build a credit-worthy record for yourself.

There are 3 different types of credit cards offered by First Bank. They include:

• Visa Infinite: This is the highest card in the visa range of card products. It is targeted at the top 1% to 5% of the bank’s customers. With the First Visa Infinite credit card, you get access to guaranteed transactions success rates and acceptance across all channels.

• Naira Credit Card: This is an international credit card that is accepted for payment at over 29 million locations, and for cash withdrawals at over 1.8 million ATMS.

• Visa Gold: This is a Dollars denominated card First Bank issues in partnership with Visa international.

2. UBA Nigeria

You can get the UBA Naira credit card if you’re a customer who has been using a UBA salary account for a minimum of 3 months.

This credit card can be used both locally in Nigeria, and internationally at any ATM or POS outlet. You will also enjoy a flexible repayment option of 10%.

3. Standard Chartered Nigeria

There are two types of credit cards offered by Standard Chartered Nigeria. They include:

• Visa Gold Credit Card: This requires a corporate organization employee to have a minimum salary of ₦75,000. For government employees, the minimum required salary you must have before you can access it is ₦50,000.

• Visa Platinum Credit Card: To get access to this, You must have your salary account with Standard Chartered Bank Nigeria, plus, a good credit bureau history.

3. Zenith Bank

Zenith Bank credit cards offer you the benefit of regular purchase on POS, web, and ATM. They offer a range of Classic, Gold, and Platinum credit cards that help you fund your lifestyle.

4. GTBank

The GTBank Visa credit card is an internationally accepted payment card that is denominated in US Dollars. The card is valid for a period of 3 years.

6. Stanbic IBTC Bank

The Stanbic IBTC credit card is a credit facility designed to provide you with cash when you need it the most. With this, you get up to 55 days of interest-free purchases and cash from any ATM worldwide. For more products from Stanbic, you can check out the Stanbic IBTC EZ cash loan.

Human needs are unlimited. Therefore, even when you receive a monthly income as a federal worker, it might just not be sufficient to achieve the plans on ground. This is where the loan idea comes in. It’s a chance for you to get sufficient capital, as at the time you need it with a relaxed or assured income to pay back subsequently. This article provides you with all the information you need to access a loan as a federal worker and you can further explore federal loan for SMEs here.

How do I get a loan as a Federal Worker in Nigeria?

Several private and public institutions offer loan services to federal workers. You can make inquiries about them on or through physical and technological means. 

However, you can find suitable loan options from banks, online lenders, government institutions and so on. 

What is the maximum or minimum amount you can borrow?

The loan amount you are eligible to borrow depends on certain factors. This includes the type of loan you are applying for, either personal, auto or mortgage; the loan tenor-  whether long or short term among others.

From a general overview, however, loans for Federal government staff in Nigeria are usually between  ₦50,000  and N6, 000, 000.                                                         

 Interest rates

Although the interest rates vary, depending on certain factors. Interest rates for federal workers are always convenient and affordable. 

What are the minimum requirements for taking up a loan as a federal worker?

These requirements are determined by the terms of your loan agreements. However, the following are some basic requirements that might apply to most lenders:

•  Personal details- full name, residential address, email address, phone number etc

• You must have a bank account, either Current or Savings, with a commercial bank in Nigeria.
• Your Staff Identification card is also an important requirement as well as your Pension statement
• You must be a salary earner under the federal government with a verifiable monthly income.

.

Also, some lenders may require your general employment information and documentation. This may include your Letter of Employment, Confirmation, Promotion, Redeployment, Salary Increase. 

Some may also require an Introduction Letter from your Employer’s HR.

Additionally, some lenders might require that, to qualify for a loan, you should be between the age of 22 and 58 years old.

Where can I get loans as a federal worker?

As a federal worker you can get loans from different financial institutions in Nigeria. Some of them include:

• FCMB – Fast Cash
• Startscredit- Creditville
• ArvoFinance Web -This is powered by Arvo finance to cater for the needs of Federal government workers in Nigeria.
• Nextpayday loan – They offer loans to validly employed workers in Nigeria 
• Fast Credit Nigeria Limited 
• Petty Cash
• Provest Limited – Public Sector loan
• Primera MFB -Easy Money federal 

How fast are funds released?

The system for the disbursement of funds equally differs from lender to lender. Although, more often than not, once your loan application is approved, the money is sent to your registered account.

 Repayment terms

The repayment plans for loans available to federal workers are usually very easy and convenient. This is usually subject to your agreement with a potential lender. Most times,  a certain percentage of your salary may be deducted monthly or weekly for a particular period until the loan amount is fully settled. 

Conclusion

It’s not enough to dream, neither is it enough to wish for more when you can achieve a dream come true and bring your wishes to life. Secure a loan today and enjoy the bliss of fulfilment.

In desperate situations, people do desperate things to get money at any cost. Most of the times, it is done illegally because they do not have the requirements to get a legal loan. The high demand of people who sort out loans this way is matched by a high number of loan sharks. The question becomes, who is a loan shark? And how do they operate? Well, you would find out by reading this article.

Who is a loan shark?

A loan shark is simply an organization or individual that loans money to people at extremely high rates. Their rates are usually far above the established legal boundaries. Loan sharks mostly employ violent means to collect debts and hold on to high stakes in case you cannot pay up. Generally, an organized crime group or single individual from the group are the loan sharks.

How does loan shark work?

Loans sharks are usually people in the shadows. We often find them in areas with a high poverty rate, or on the internet. They also offer cash from unidentified sources from their criminal network with unregistered entities or personal businesses.  Loan sharks operate completely off the books unlike regular financial institutions and do not carry out background checks or credits of borrowers.

The process is simple; they give out a large sum of money and expect the principal with an outrageous previously agreed interest within a time frame. The time frame is usually very short. Most times, the demand can span up to 200% interest with as 30 days time frame. Loan sharks are dangerous and illegal for most clean businesses, which is why it is really best you seek other ways.

Why is a loan shark illegal?

Firstly, loan sharks offer loans at outrageously illegal interest rates. If you cannot meet the repayment date, loan sharks often result to violence to force repayment. Their mode of operation includes threats of violence and blackmails to obtain the repayment. Historically, loan sharks have been known to flaunt illegal and criminal activities in a bid to obtain repayment.

What is the difference between loan shark and payday loans?

Although similar in some ways, loan sharks are not the same with payday loans. Although payday loaners often offer loans at outrageous interest rates within a short time, they do it completely legally. Payday loans are done by the books. They do not adhere to standard usury laws that state the maximum interest rate a lender can charge to be 45% (depending on the state), because they are granted exceptions specially.

In simpler terms, payday loaners can charge that ridiculously high legally, due to government regulations. However, loan sharks’ interest rates are still usually higher than that of payday loans. Also, payday loans are obtained through the standard legal procedures between a lender and a borrower.  They run background credit checks and require certain documents like proof of employment and income. This information determines the sum they offer to borrowers.

Unlike loan sharks. Payday loaners do not employ violent means in obtaining repayments, although they offer very short terms. In obtaining repayment, standard procedures are followed, and defaulters are reported to the credit bureau.

Are loan sharks dangerous?

Loan sharks often threaten defaulters with legal prosecutions and jail terms when short of payment. Due to their mostly illegal operations and crime connection, we can safely say they are dangerous. However, certain individuals pose as loan sharks to take advantage of the high interest rate benefits, but aren’t really dangerous. In all, it is best to abstain from loan sharks completely.

Conclusion

Loan shark business thrives in rural areas where loans are generally inaccessible due to most citizens not meeting the minimum requirement. They are dangerous and result to violent means to recover repayments, asides the problem of demanding outrageous interests. 

Money loaning and repayment system is a complication that comes in different forms, especially when borrowing large sums. This led to the development of loan amortization, which provides a clear set payment amount at stipulated times. These set payments cover both the principal and interests on the loan and help create a clear picture of things. In this article, we have simplified loan amortization for your understanding, as well as including every other thing you should know.

What is loan amortization?

Loan amortization is a type of loan that is designed with a scheduled repayment structure. This structure includes periodic payments in which the borrower is to meet, and it applies to both the loan interest accrued and principal amount. The focus of an amortized loan is to pay off accrued interest for a set period, after which it focuses on the principal or pay off both at the same time.

In simpler terms, it amortizes any loan you take that follows a repayment schedule of the interest and principal itself. Some examples of these are car or auto loans, personal bank loans, home loans, etc.

How does loan amortization work?

The loan amortization system is pretty tricky but easy to understand if you follow closely.

To calculate the interest rate on an amortized loan, they use the most recent ending balance of the loan. This way, the interest payment varies and depends on your ability to meet the periodic payments. At the expected periods, any excess payments made reduces the principal by the excess on the payment. This reduces the balance left, which is used in calculating subsequent interest.

This system encourages you to make excess payments, which would reduce the principal after covering the interest incurred. This way, you get a lesser interest since the interest is determined periodically based on the most recent ending balance of the loan. The interest and principal have an inverse relationship over the lifespan of an amortized loan.

Why amortize a loan?

The goal of loan amortization is to create a clear picture for the borrower to work with. They design it so you can pay off the loan over an extended period with equal amounts for each payment period. However, you can speed things up by paying more, hence reducing the principal owed. This way, you are both paying off the interest and principal at a go. Should you decide to focus solely on the interest payment, the principal portion increases, and vice versa. This system encourages you to pay off both sides at the same time.

 

What are the types of loan amortization?

Loan amortization can fall into any of the four categories. They are:

1. Full amortization: 

in this loan, paying the full amortization would result in your outstanding balance being reduced to zero at the end of the loan term. This is the most common loan amortization type.  

2. Partial amortization: 

this entails you paying a portion of your amortization amount. For every payment made, it would reduce your outstanding principal on the loan for each month. If you only pay partial amounts, you would have an outstanding balance at the end of the loan term.

3. Interest only: 

for interest only, you would not include any amortization payments during the loan term. It rather focuses on paying only interest, and the principal remains the same as it was initially at the end of the term.

4. Negative amortization: 

negative amortization is more comfortable to pay in the short term but costly in the long term. This type requires lower monthly payments than interest only loans; however, that monthly payment increases the outstanding principal on the loan. Any shortfall of payments to the interest amount gets added to the total payable loan amount at each month’s end.

Loan amortization – practical example

Putting the four categories of loan amortization into a practical example – take, for instance, that you borrowed N300,000 with a 20-year repayment plan.

With full amortization, you would have paid off the loan at the end of 20 years. If partial amortization, then you could still owe some amount but far lesser than N300,000 at the end of the term. With interest only, you would have paid off the interest, but the principal of N300,000 remains. Lastly, negative amortization would see you most likely owe more at the end of the loan term.

Conclusion

Loan amortization is a transparent system that gives you a clear plan on how to pay up. It also rewards your diligence to meeting with the payment schedule through favourable interests and spikes it if you do not pay up. It is recommended that you stay with a full amortization loan as much as you can, as venturing into other types might be risky.

The reality of things is that only a few people go through life without obtaining a loan. At one point or the other, you might have to get a loan to pay for an asset or a new car or even invest in a business. For whatever reason it is, one common factor is that you have to sign a loan agreement. This agreement is between the loan giver, and you the loan receiver. Whichever side you are one, you have to understand the standard clauses in a loan agreement to help you navigate the terrain.

This article would inform you of everything you need to know about these clauses and a bit of extra information too.  

Why is a loan agreement important?

A loan agreement is a binding contract between all the parties involved in a loan, signed to formalize the loan process. These agreements could come in different forms, ranging from simple payback promise notes between friends to more explicit ones, as seen offered by banks. A loan agreement stands as a binding contract of the obligations of all parties in the loan and can stand in court.

Federal and state guidelines govern loan conditions and agreements. This is to prevent extortion due to illegal or excessive interest rates on repayment.

What are the details of a loan agreement?

Loan agreements usually include:

1. Covenants
2. Value of collateral involved
3. Guarantees
4. Interest rate terms
5. Duration of repayment

Also, it clearly states the default terms and conditions in the agreement to avoid confusion or legal implications. They specify the terms of collecting outstanding debts in case of a default, and the specific cost involved in collecting the debt.  

What are the standard clauses in a loan agreement?

We considered the most standard loan agreement contract in selecting the clauses that should appear in a loan agreement. It is a contract between the bank and a borrower. Please note that restrictions to these clauses are not to banks alone, and could be included in other loan contract agreement.  

Interest fluctuation clause: 

This clause gives the bank a right to select an interest according to their base rate fluctuations. This means the bank can alter interest rates when they change their base rates without your approval.

Definition of default: 

The bank (borrower) determines the terms of a default, as it transcends simply missing a predetermined fixed interest payment. You should thoroughly read the terms of default, as defined by your bank.

Clauses regarding disbursement: 

This depends on the nature of the loan. For example, a building loan could include a disbursement clause that states that the money would be disbursed directly to the contractor and not you. In such a case, although you are the borrower, they would not release the money to you.

You could also have a disbursement situation where the loan is released to you directly, and you determine how it is used. The bank would state all these conditions in the contract.

Force majeure clause: 

This is a clause in which most banks include in a loan agreement. It gives the lender (bank) the right to unfix the fixed interest rate in the event of unforeseen economic situations like inflation. Go through your agreement contract to understand this clause and avoid future disputes.

Reset clause: 

This clause applies to fixed-rate loans. In some of these loans, they include a reset clause to allow the bank to reset the rate to a higher level after some years. This happens especially when interest rates seem to show a rising trend.

Debt collection by third parties: 

Most lending banks include a clause in their loan contract that enables them to transfer your details to third party collectors. They can do this without informing you, and from there on, the third party takes charge of recovering the loan. It mostly happens after you default.

Amendment clause: 

This is a very precarious clause that allows the bank to amend the conditions of your loan agreement without prior notice. Always read it in detail to know what it entails if you find one in your loan agreement.

Conclusion

These standard clauses in a loan agreement could vary from one lender to another. Although you could find some missing, or not, they remain the standard applied by most banks.

Always take time to go through each individual clause in order to know what you are getting into. Ignorance has led to so many issues between borrowers and lenders in the past. Do not be caught unaware. You can further read about loan documents here.