What are the benefits of Personal Loans?
At every point in your life, you'll need money for one thing or the other: starting or expanding your business, paying medical bills, settling your kids' school fees, fixing your damaged car, paying your rent, and so on. Unless you're a multi-millionaire, you'll always have one or more expenses waiting to consume every Naira you earn.
The reality is that there are times when you just won't have the money when you need it so badly. In such instances, you have a number of options: ask your friends and family for assistance, sell some of your assets at giveaway prices, or take a loan. If you're like most people, you would definitely prefer taking a loan.
Among the different types of loans available, personal loans are the best options for most individuals. In this article, you'll learn more about personal loans and the benefits of favouring them over other types of loan.
What is a Personal Loan?
A personal loan is a loan granted for personal needs by a bank or other lenders. It's also called an "unsecured" loan because it's not secured against any of your assets (house, car, etc.).
After taking a personal loan, you'll be required to repay it through fixed amount instalments over a given period. You as a loan taker can decide how much money you would like to borrow and over which period you would like to repay the loan amount.
For example, you need to pay rent in advance for the next 12 months and you don't have the money available right now, so you decide to take a loan. You take an unsecured personal loan for ₦500,000, which you plan to repay over a period of 12 months and the applied interest rate by the loan institute is 5.0% per month, then monthly repayment amounts to: ₦500,000 / 12 months + ₦500,000 * 5.0% interest) = ₦66,666. Repayment per month equals the overall loan amount divided by the maturity of the personal loan plus the charged interest rate. In this case, total repayment over 12 months amounts to ₦800,000.
Benefits of Personal Loans
You should note that a personal loan doesn't require collateral, it comes with a number of other benefits. Here are some of the most important ones.
Personal loans are perfect for emergencies because they are usually processed quickly - sometimes within 24 hours. This means you can easily obtain funds for expenses that require immediate payment, such as medical bills.
Personal loans can be accessed quickly because they require minimal paperwork and protocol. Just approach your lender and fill some forms, and you'll have the funds released to you after a few days, at most, provided you meet the lender's conditions.
Unlike home loans, auto loans, or business loans, which all can only be used for specific purposes, Personal Loans can be used for anything you want, usually no questions asked.
In the case of personal loans, your lender is less interested in what you intend using the funds for. What they're interested in, is your capability of repaying the loan at the determined due date. So people take personal loans for many different reasons, some of them are marriages, medical treatment, business, vacation, or to pay education fees.
Lower interest rates
When compared with other loan types, personal loans attract relatively lower interest rates, which are usually fixed. As a result, there is stiff competition among lenders to attract customers by offering lower interest rates that are even sometimes negotiable.
Loan companies also assess your risk in terms of default, which means they base the charged your interest rate on your ability to repay the loan amount in the future. Thus, if you have a high-income job, no other loans in place, and have a long-lasting working relationship, you will have no problems in getting the best interest rates possible.
In addition, some lenders will offer you the option of beating your interest rates further down by providing collateral (that is, by converting your personal loan into a "secured" loan).
Most personal loans are fixed-term loans. That is, they offer the same interest rate and repayments throughout the term of the loan. This will help you to know beforehand when exactly you will finish paying up the loan.
For example, assume you take a personal loan of ₦2 million, and your lender requires that you pay at least ₦100,000 monthly (excluding interest, which you must also pay monthly). In that case you'll pay up the loan in 20 months, at most - all other things being equal. This planned arrangement can help you maintain financial discipline during the period of repayment.
However, if you're able to pay up your loan before the maximum repayment period specified by the lender, that's absolutely fine by most lenders, and you won't incur any penalties. In almost all cases, loan providers increase your credit rating when you repay your loan in time or ahead of schedule.
With all of the above in mind, you should now understand why taking a personal loan is your best bet whenever you need some extra cash to help you through hard times.
However, please also bear in mind that taking a personal loan increases your personal risk of default, because you are taking a financial liability to repay the loan amount plus interest rates in the future. In order to find out in seconds, which loan providers provide loans in your city, whether you qualify for a loan and what the relevant interest rates are, simply use the TopCheck online calculator. It's free of use, easy and independent!
Example Loan: ₦500,000 Loan amount, 1-12 months duration, 2.83% monthly interest rate, 37.61% max APR, ₦688,050 total value, ₦57,338 max monthly repayment, RenMoney MfB