Loans are an essential part of the financial system in Nigeria. They can help individuals and businesses to meet their needs, achieve their goals, and overcome challenges. However, getting approved for a loan in Nigeria is not always easy.
This blog post will discuss how to get approved for a loan in Nigeria successfully. To do this, you must first understand the types of loans available, the eligibility criteria, the credit score, and more criteria used in approving a loan.
The Importance of Loans in Nigeria
Loans are a form of credit that allows borrowers to access funds they do not have but can repay with interest. It can be used for various purposes, such as:
- Personal loans: These are loans that individuals can use for personal expenses, such as education, health, travel, home improvement, wedding, etc.
- Business loans: These are loans that businesses can use for operational or expansion purposes, such as working capital, inventory, equipment, marketing, etc.
- Agricultural loans: These are loans that farmers and agribusinesses can use for farming activities, such as crop production, livestock rearing, processing, storage, etc.
- Mortgage loans: These are loans that individuals or businesses can use to purchase or build real estate properties, such as houses, apartments, offices, etc.
Loans are essential for the economic development of Nigeria because they can:
- Boost consumption: Loans can increase the purchasing power of consumers and stimulate demand for goods and services.
- Enhance production: Loans can enable producers to acquire inputs and resources to improve their productivity and output.
- Create employment: Loans can create opportunities for entrepreneurs to start or expand their businesses and generate jobs for others.
- Support innovation: Loans can foster innovation and creativity by providing funds for research and development, new technologies, and new products.
- Facilitate trade: Loans can facilitate trade and commerce by providing funds for import and export activities.
Types of Loans Available in Nigeria
Different types of loans are available in Nigeria depending on the source of funds, the duration of repayment, the interest rate, and the collateral requirement. Some of the common types of loans are:
Bank Loans
These are loans that banks and other financial institutions provide. Bank loans can be secured or unsecured. Secured loans require borrowers to pledge an asset as collateral to reduce the risk of default.
Unsecured loans do not require collateral but have higher interest rates and stricter eligibility criteria. Bank loans can be short-term (less than one year), medium-term (one to five years), or long-term (more than five years).
Microfinance Loans
These loans are provided by microfinance institutions (MFIs) that specialize in serving low-income individuals and small businesses.
Microfinance loans are usually small in amount (less than N100,000) and short in duration (less than one year). Microfinance loans typically have lower interest rates and more straightforward eligibility criteria than bank loans.
Online Loans
These loans are provided by online platforms that use digital technologies to connect borrowers and lenders. Online loans are peer-to-peer lending platforms where individuals lend and borrow money from each other without intermediaries.
Cooperative Loans
These loans are provided by cooperative societies formed by members who share common interests or goals. Cooperative societies pool their resources and offer loans to their members at low interest rates and flexible repayment terms.
Government Loans
These are loans provided by government agencies or programs that aim to support specific sectors or segments of the population. Government loans may have subsidized interest rates or grants attached to them.
Understanding Loan Eligibility Criteria
Loan eligibility criteria are the requirements applicants must meet to qualify for a loan. Lenders have different eligibility criteria depending on their risk and target market. Some of the standard eligibility criteria are:
Age:
Loan applicants must be within a specific age range (usually 18 to 60 years) to be eligible for a loan.
Nationality
Borrowers must be Nigerian citizens or residents to be eligible for a loan.
Income
Borrowers must have a stable and verifiable source of income (such as salary, business income, pension, etc.) to be eligible for a loan. Borrowers must also have a minimum monthly income level (usually N20,000 to N50,000) to qualify for a loan.
Credit History
Borrowers must have a good credit history to be eligible for a loan. Credit history is a record of how borrowers have repaid their previous debts.
Credit history is measured by the credit score, a numerical value reflecting the borrower’s creditworthiness. Borrowers with higher credit scores are more likely to get approved for loans than borrowers with lower credit scores.
Collateral
Borrowers may be required to provide collateral to be eligible for a loan. Collateral is an asset that the borrower pledges to the lender in case of default.
It can also be tangible (such as land, property, vehicle, etc.) or intangible (such as stocks, bonds, certificates, etc.). Collateral can reduce the lender’s risk and increase the chances of loan approval.
Improving your Credit Score for Loan Approval
Your credit score is one of the most important factors lenders consider before approving your loan application.
Therefore, it is essential to improve your credit score if you want to get approved for a loan in Nigeria successfully. Here are some tips to improve your credit score:
Check your Credit Report
Your credit report is a document that contains your personal information, credit history, and credit score. You can obtain your credit report from any of Nigeria’s three licensed credit bureaus: CRC Credit Bureau, Credit Registry, and XDS Credit Bureau.
Moreover, you can request your credit report once a year for free or pay a fee for additional requests. You should check your credit report regularly to ensure that it is accurate and up-to-date.
If you find any errors or discrepancies in your credit report, you should dispute them with the credit bureau and the lender involved.
Pay your Bills on Time
Your payment history accounts for about 35% of your credit score. Therefore, you should pay your bills on time and in full every month. This includes your utility bills, phone bills, rent, etc.
Paying your bills on time shows that you are responsible and reliable with your finances. It also helps you avoid late fees, penalties, and negative marks on your credit report.
Reduce your Debt
Your debt-to-income ratio accounts for about 30% of your credit score. Therefore, you should reduce your debt as much as possible. This includes your credit card balances, personal loans, overdrafts, etc.
Reducing debt lowers your debt-to-income ratio and shows you can manage your finances well. It also helps you save money on interest and fees.
Maintain a Good Credit Mix
Your credit mix accounts for about 10% of your credit score. Therefore, you should maintain a good balance of different types of credit, such as revolving credit (credit cards) and instalment credit (loans).
A good credit mix shows that you can handle different kinds of debt and repay them accordingly. It also helps you diversify your risk and improve your credit profile.
Avoid Multiple Inquiries
Your new credit accounts for about 10% of your credit score. Therefore, you should avoid applying for multiple loans or credit cards quickly.
Every time you apply for a new loan or credit card, the lender will perform a hard inquiry on your credit report, temporarily lowering your credit score.
Applying for multiple loans or credit cards also shows that you are desperate for money and may be unable to repay it.
Tips for Preparing a Loan Application
Once you have improved your credit score and met the eligibility criteria, you can prepare your loan application. Here are some tips to prepare a successful loan application:
Do your Research
Before applying for a loan, you should research the different types of loans available in Nigeria and compare their features, such as interest rates, fees, repayment terms, etc.
You should also research the different lenders in Nigeria and their reputation, customer service, etc. You should choose the type of loan and the lender that best suits your needs and preferences.
Plan your Budget
Before applying for a loan, you should plan your budget and determine how much money you need and can afford to repay.
It would be best if you also considered the purpose of the loan and how it will benefit you in the long run. You should avoid borrowing more than you need or more than you can repay.
Prepare your Documents
Before applying for a loan, you should prepare all the documents the lender may require. These may include:
- Your identification document (such as national ID card, driver’s license, passport, etc.).
- Your bank statement (showing your income and expenses).
- Prepare your proof of income (such as pay slip, tax return, business registration, etc.).
- Your proof of address (such as utility bill, rent agreement, etc.).
- Your collateral document (if applicable) (such as property title, vehicle registration, etc.).
You should ensure your documents are clear, valid, and up-to-date. You should also make copies of your documents and keep the originals.
Fill out the Application Form
Before applying for a loan, you should fill out the application form that the lender provides. You should provide accurate and complete information about yourself, your income, expenses, loan amount, loan purpose, etc.
Moreover, you should also read and understand the terms and conditions of the loan and sign the form accordingly. You should avoid making false or misleading statements on the form, which may lead to rejection or legal consequences.
Submit your application
You can submit your application to the lender after preparing your documents and completing the form.
You can submit your application online or offline, depending on the lender’s preference. You should also keep a record of your application and follow up with the lender if necessary.
How to Choose the Right Lender
Choosing the right lender is crucial for getting approved for a loan in Nigeria. Here are some factors to consider when choosing a lender:
Reputation
It would help if you chose a lender with a good market reputation and among its customers. Also, you can check the lender’s reputation by reading online reviews, ratings, testimonials, etc.
You can also ask for referrals from your friends, family, or colleagues who have used the lender. Also, avoiding lenders with negative feedback, complaints, or lawsuits against them would be best.
Regulation
It would be best if you chose a lender regulated by the appropriate authorities in Nigeria. You can check the lender’s regulation status by visiting the Central Bank of Nigeria (CBN) website.
The Securities and Exchange Commission (SEC), the National Insurance Commission (NAICOM), etc. It would help if you avoided lenders that are unregulated or operate illegally, as they may not follow the rules and standards of the industry.
Transparency
Choosing a transparent lender for its products and services would be best. Also, you can check the lender’s transparency by reading its terms and conditions, fees, charges, interest rates, repayment terms, etc.
You should also ask questions if you have doubts or concerns about the loan. Also, it would be best to avoid lenders that are vague or secretive about their information or hide any costs or risks from you.
Flexibility
It would help you choose a flexible lender responsive to your needs and preferences. Also, you can check the lender’s flexibility by looking at its loan options, features, benefits, etc.
You should also communicate with the lender and negotiate for better possible terms. Also, it would be best if you avoided rigid or inflexible lenders that do not accommodate your requests or suggestions.
Customer Service
It would be best to choose a lender with excellent customer service and support. Also, you can check the lender’s customer service by contacting its representatives through phone, email, chat, etc.
It would help if you also evaluated how friendly, helpful, professional, and knowledgeable they are. Also, you should avoid lenders who provide poor customer service or ignore or mistreat their customers.
Common Reasons for Loan Rejection
Even if you have prepared your loan application well and chosen a reputable lender, you may still face rejection for various reasons. Some of the common reasons for loan rejection are:
Low Credit Score
If you have a low credit score due to late payments, defaults, collections, bankruptcy, etc., you may be rejected for a loan as lenders may perceive you as a high-risk borrower who may not repay the loan.
High Debt-To-Income Ratio
If you have a high debt-to-income ratio due to having too many debts or too little income, you may be rejected for a loan as lenders may doubt your ability to repay the loan.
Insufficient Income
If you have insufficient income to cover your expenses and repay the loan, you may be rejected for a loan as lenders may question your financial stability and security.
Lack of Collateral
If you do not have any collateral to secure the loan or if your collateral is insufficient or acceptable to the lender, you may be rejected for a loan as lenders may not have any guarantee of recovery in case of default.
Mismatched Purpose
If you do not have a clear or valid purpose for the loan or if your purpose does not match the type of loan or the lender’s criteria, you may be rejected for a loan as lenders may not see any value or benefit in lending to you.
Incomplete or Inaccurate Application
Suppose you do not provide all the required documents or information or provide false or misleading information on your application form. In that case, you may be rejected for a loan as lenders may not trust or verify your identity or eligibility.
Alternatives to Traditional Loans in Nigeria
If you cannot get approved for a traditional loan in Nigeria for any reason, you may consider some alternatives that may help you access funds for your needs. Some of the other options for traditional loans in Nigeria are:
Savings
Savings are the most basic and reliable way of accessing funds for your needs. You can save money by setting aside a portion of your income every month.
Also, it should be kept in a safe and accessible place such as a bank account, a piggy bank, etc. You can use your savings to pay for your expenses or invest in your goals without interest or fees.
Family and Friends
Family and friends are another common and convenient way of accessing funds for your needs. You can borrow money from your family and friends who trust and will help you.
You can repay them at your convenience without any interest or fees. However, it would be best not to borrow more than you can repay or damage your relationship with them.
Crowdfunding
Crowdfunding is a modern and innovative way of accessing funds for your needs. You can use online platforms like GoFundMe, Kickstarter, Indiegogo, etc.
To raise money from the public for your personal or business projects. You can offer rewards, equity, or gratitude to your backers in return for their contributions.
However, you should be aware of the risks and challenges of crowdfunding, such as fraud, failure, competition, etc.
Grants
Grants are a form of financial aid you do not have to repay. You can apply for grants from various sources, such as government agencies, non-governmental organizations, foundations, corporations, etc.
Others offer grants for specific purposes such as education, health, agriculture, etc. However, you should know the eligibility criteria, application process, reporting requirements, etc. of grants.
Angel Investors
Angel investors invest their own money in startups or small businesses with high potential for growth and profit.
You can pitch your business idea to angel investors interested in your industry, market, product, etc. You can offer them a share of your equity or profits in return for their investment.
However, you should be aware of the risks and challenges of angel investing, such as loss of control, dilution, valuation, etc.
Conclusion
Securing a loan in Nigeria can be a challenging but rewarding process that can help you unlock financial opportunities for yourself or your business.
However, to successfully get approved for a loan in Nigeria, you need to understand the types of loans available, the eligibility criteria, the credit score, the application process, the lender selection, the common reasons for rejection, and the alternatives to traditional loans.
By following these steps and tips, you can increase your chances of getting approved for a loan in Nigeria and achieve your financial goals.