Just like most important aspects of adult life, taking out a loan is often a fact that almost everyone needs at some point. It could be for a new home, school fees, or maybe to start a business. Whatever reason you have to borrow money, you must never go in blindsided. In this article, we’ll discuss all the best ways to borrow money in Nigeria using the table of content below.
Professional financing options are many and varied nowadays, which range from traditional financial institutions, like banks, credit unions, and financing companies, to Internet Age creations, like peer-to-peer lending (P2P); from public agencies to your contribution in the National Contributory Pension Scheme, which is like having a 401 (k) plan in America.
Below, we’ll outline some of the more popular lending sources, explaining how they work and reviewing the pros and cons associated with each.
The bank is the more traditional route for those looking to borrow money, and for years people have depended on them as an unending source of funds. After all, if anywhere is expected to have cash, it’s a bank since they take in money in deposits and redistribute in forms of financing products like mortgages and you guess it, loans.
Although in most cases, banks charge a higher interest rate on the funds they give out, but they
are usually more recommended for the transparency they offer unlike some of the other sources for loans.
In banks, there are a variety of ways to borrow money, from mortgages to personal loans, salary loans, educational loans, device loans, auto loans, construction loans, and other financial products.
Here are a few reasons taking a loan from a bank might be the best option for taking a loan in Nigeria.
Despite being the most common place where loans are sought, there are a few things people have considered as cons, which is;
Peer-to-Peer lending also known as social lending is quite a common practice in Nigeria.
However, it is referred to as AJO. This is a method that enables individuals to borrow money from one another directly without an institutional intermediary like a bank or broker. While it removes the middleman from the process and incurs zero extra costs, it also involves more time, effort, and risk than going through an official financial institution.
In this method, two or more involved either link up via a peer-to-peer online platform or in most cases communicate directly through a group text
Even though they’re not commonly used in Nigeria, credit cards are available in Nigeria. How
they work is simple. When you use a card for a purchase, the credit card merchant pays for you,
kind of like giving you money in advance, until your bill or statement comes.
PROS AND CONS OF USING A CREDIT CARD
1.Typically, there are no extra fees on acquiring a card.
2.Little to no interest on your loans.
3.Great for short-term borrowing
1.Interesting rates can go up to 20% on delayed payments
2.Bad for long-term lending
3.They can escalate penalties to authorities on default.
4.Can ruin your credit score.
NATIONAL CONTRIBUTORY PENSION SCHEME
This is equivalent to Americas 401k is the National Contributory Pension Scheme.
If you need a loan, why not borrow money from yourself? Most plans along with comparable workplace-based retirement accounts, allow employees to withdraw funds in the shape of a loan.
Since your pension fund is for your retirement, meet at least one of the following to take a loan from yourself :
1.You must have made additional or voluntary lump sum contributions into your RSA. It is from that money that you can withdraw before retirement.
2.They also allow you to withdraw up to 25% of your retirement account fund under 50. This holds on to the event of losing your job and you cannot secure another within 4 months. The sum is also tax-free.
3.You intend to get a mortgage loan. RSA allows withdrawal of up to 25% of retirement funds.
It is important to note that asides from these conditions, the Pension Reform Act of 2014 strictly prohibits withdrawal from your pension account.
This depends on your Pension Fund Administrator. Different pension fund administrations have different methods and requirements for releasing funds to you. However, the process requires that you approach your PFA with the following documents:
1.Letter of termination of appointment issued by your former employer or letter of resignation.
2.PFA last three months’ payslip.
3.A letter from you requesting a desired percentage of payment from your RSA balance (25% maximum). This could also be a percentage of your voluntary lump-sum contribution.
4.Evidence of accrued pension rights if applicable (mostly for public sector workers).
5.Letter of introduction from your bank or bank statement.
6.Proof of age through a birth certificate or sworn declaration of age
7.Letter from your employer which confirms full remittance of all contributions made to your RSA (for private-sector workers).
8.PenCom retiree indemnity form if you work in the public sector.
9.A form your PFA would give, and four passport photographs.
You then repay the loan gradually, including both the principal and interest
PROS AND CONS OF BORROWING FROM YOUR RETIREMENT PLAN
1.The interest rate on pension loans is relatively low.
2.Interest doesn’t go to the bank or another commercial lender, it goes to you.
3.No application fees associated with the loan.
Remember, though, just because you’re your borrower doesn’t mean you can be sloppy or lazy with repayments. If you don’t pay on schedule, and the governing body finds out, they could consider you in default and have penalties due on it. Another important, long-term consideration:
If you remove money from your retirement plan, you lose out on the funds compounding, which is borrowing money from your pension is advisably seen as a last resort.
Financing companies, aka finance companies, are outfits dedicated to borrowing money. Unlike banks, finance companies do not accept deposits or provide other financial services or products (safe deposit boxes, credit, cards, etc.). They just routinely make loans to individuals or businesses needing funds. In the case of consumers, they usually provide loans to purchase big-ticket goods or services, such as a car, major appliances, or furniture. Some specialize in medical or healthcare costs.
While some lenders make longer-term loans, most financing companies specialize in short-term loans. Often they are connected to a manufacturer or larger company, serving as their financing arm, so to speak.
PROS AND CONS FROM BORROWING FROM FINANCIAL INSTITUTIONS
1.Financing companies usually offer competitive rates.
2.They often connect the finance company to the retailer or manufacturer whose products you’re buying.
1.They have limited options for loans.
Now that you know all you need to know about all the places you can seek loans in Nigeria, the next step is researching the exact loan you want with the individual merchants.
A financial cooperative is a financial body that is owned and operated by its members. It acts on behalf of a unified group of people while still offering traditional banking services.
It is a more organized version of peer-to-peer lending, and they vary in sizes and form.
Cooperatives usually have open membership, where members are the owners as well the customers. The size of the cooperative depends on the number of members who take part. The more members a cooperative has, the more resources it offers in financial products. Credit unions are an excellent example of a financial cooperative.
Types of cooperative in Nigeria
Primary Cooperative– Operations of primary societies permits its members who live in the same locality and share the same goals and aspirations to go into synergy to achieve their goals collectively.
Secondary cooperative. These cover a more extensive range of operation. It’s formed by the combination of two or more primary cooperative societies with its members and shareholders. They are the union and councils.
Tertiary Cooperative – These consist of both primary and secondary cooperatives.
Industrial Cooperative – This is created by people who have the same craft or employment in common.
PROS AND CONS OF GETTING A LOAN FROM A COOPERATIVE SOCIETY
Most cooperatives are focused on uplifting their members financially.
Loans are granted at a very low interest rate.
You must be a member of the cooperative for a specified period before you can be eligible for a loan.
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