Meaning and Types of Loans
Every single day there is the need to carry out business transactions. It is a fundamental element of everyday living. Having the means to complete these financial activities usually means having sufficient funds. That is, however, a different matter.
Half the time, a lot of the things you need to do cannot be done because of a lack of finances at the time.
What happens then? You get a loan then. The technicalities on loans seem to be straight forward.
In this article, we will be breaking it all down; what loans are, what types of loans there are in Nigeria, and how you can get them.
What is a loan?
A loan is simply money (in some cases, it could include other financial assets) given to another individual with a promise of repayment either on principal (the actual amount borrowed/lent) alone or with interest (an additional amount added to the principal usually calculated throughout the loan). They could be for personal use or business.
What are the types of loans?
There are various types of loans in Nigeria meant for multiple purposes. As there are many reasons to carry out transactions, there are many types of loans to meet these reasons as well. The types of loans are;
- Secured loan: a secured loan is a loan that requires you to provide collateral when applying for the loan. This collateral is a form of safeguard for the loan provider, and so if you don’t pay the loan back, the loan provider gets to collect the collateral to settle the loan. Secured loans usually have lower interest rates, and you can borrow more.
- Unsecured loan: with unsecured loans, it requires no collateral in the application of the loan. Unsecured loans are usually personal, instant loans in Nigeria and come with higher interest rates because of the payback. There is less money available to borrow with unsecured loans, however.
- Single payment loans: as the name implies, these loans involve a borrower taking out a loan from a loan provider and agreeing to pay back the full amount of the loan plus interest in one payment.
- Monthly payment loans: unlike single payment loans where you pay back the loan once, you repay monthly payment loans over a spread period. Each month, you pay a prefixed amount, until the loan and interest are settled.
- Salary advance loans: Salary Advance loans involve people who collect their paycheck ahead of time. Most paychecks are paid towards the end of the month, but with a salary advance, you could get it earlier than that. The amount is then deducted from the actual salary when it is paid. Salary advance loans usually don’t charge high-interest rates.
- Mortgage: these are loans taken out for the purchase of a house or landed property. At a fixed period, an amount is deducted to settle the mortgage. However, if the payments on the mortgage stop or if it isn’t paid, the mortgage loan provider gets to collect the property from the borrower.
- Fixed-rate loans: fixed-rate loans are loans with one fixed interest rate throughout the loan.
- Variable-rate loans: with variable rate loans, the interest rates on the loan change over time. The change is determined by the general interest rates fluctuating.
How can you access the loans?
Loans are easily accessible from most financial institutions; it all just depends on what type of loan you’re looking for; either it’s for personal use or business. Banks, credit unions, cash advances are valid means of getting loans, and there is a plethora of other loan service providers popping up each day, each with its terms and conditions.
Now that we have broken down the types of loans, you know which would meet your needs perfectly. Be sure to check out the interest rates on loans before you collect them, as well as the payback period.