Taking a loan can be a helpful financial tool when used wisely, but in Nigeriawhere interest rates, lenders, and terms vary widely, it’s important to understand the implications before you commit. Here are the key things you should know before taking a loan.

1. Understand Why You Need the Loan

Before applying, be clear about the purpose of the loan. Is it for:

• Business expansion
• Education
• Medical emergencies
• Asset purchase (car, land, equipment)
• Personal consumption

Loans used for income-generating or value-adding purposes are generally safer than loans for consumption.

2. Know the Types of Loans Available in Nigeria

Common loan options include:

• Bank loans – Lower interest but stricter requirements
• Microfinance loans – Easier access, higher interest
• Digital/app loans – Fast approval, very high interest and short tenors
• Cooperative loans – Lower interest, member-based
• Government intervention loans – Targeted, subsidized, but competitive

Each type comes with different risks and benefits.

3. Check the Interest Rate (Not Just Monthly Payments)

Many lenders advertise small daily or weekly payments, but the real cost lies in the interest rate and fees. Pay attention to:

• Flat vs reducing balance interest
• Annual Percentage Rate (APR)
• Processing, insurance, and administrative fees

A loan with “easy repayment” may still be very expensive.

4. Understand the Repayment Terms

Before signing anything, confirm:

• Loan tenor (duration)
• Repayment frequency (daily, weekly, monthly)
• Penalties for late or missed payments
• Early repayment conditions

Choose a repayment plan that matches your income pattern.

5. Assess Your Ability to Repay

Ask yourself:

• Do I have a steady source of income?
• Can I repay without borrowing again?
• Will repayment affect essential expenses?

A good rule is that loan repayments should not exceed 30–40% of your monthly income.

6. Collateral and Guarantees Matter

Some loans require:

• Collateral (land, car, fixed assets)
• Guarantors

Understand what you stand to lose if you default. Never use essential assets as collateral unless absolutely necessary.

7. Read the Loan Agreement Carefully

Never skip the fine print. Look out for:

• Hidden charges
• Automatic rollovers
• Data privacy clauses (especially with loan apps)
• Legal actions in case of default

If something is unclear, ask questions before signing.

8. Be Aware of Credit Bureau Reporting

Most lenders now report to Nigerian credit bureaus. Defaulting can:

• Damage your credit score
• Limit future loan access
• Affect employment or business opportunities

Responsible repayment builds a positive credit history.

9. Avoid Multiple Loans at the Same Time

Taking several loans to service one another is a warning sign. Loan stacking often leads to:

• Over-indebtedness
• Stress and harassment
• Asset loss

If you’re already struggling, seek restructuring instead of new loans.

10. Borrow from Reputable and Licensed Lenders Only

Confirm that the lender is:

• Licensed by the Central Bank of Nigeria (CBN) or relevant authority
• Transparent with terms and communication
• Professional in debt recovery practices

Avoid unverified loan apps and informal lenders with abusive tactics.

Final Thought

A loan should be a tool, not a trap. When taken with clear purpose, proper understanding, and disciplined repayment, it can support growth and stability. When taken without planning, it can become a long-term burden.

Always borrow wisely, cautiously, and responsibly.