How Many Loan Types Are There? Here’s 12 Answers in Nigeria

Paydayloanskentucky.org – How many loan types are there? Understanding the different categories of loans will give us a lot of benefits. We’ll be aware of what to take and what to avoid.

A farmer, for example, shouldn’t jump on the payday loan hype as the Nigerian government provides specific assistance for agricultural businesses. Furthermore, it will definitely save us money and time.

In this post, we will explain all the different kinds of borrowing. We’ll answer your question about how many loan types are there. However, let’s start first with the basic question about the “lending business.”

Understanding Money Lending from Wikipedia and Other Sources

Money lending is one of the main businesses practiced by financial institutions. Banks, for example, make money by allowing people to borrow the money they have. The same can be said with insurance companies.

The source of profit for this business is interest. Higher interest means higher profit, and lower interest means lower profit. But banks aren’t the only one that participate in this business.

So, How Many Loan Types are There?

To classify the different categories of loans, we can use several variables. The first thing we can ask is “who,” or specifically, “who gave this loan to us?” Was it a bank, the government, or private companies?

Then we can inquire about the loan’s collateral. If there’s collateral, it’s secured, but if not, it’s unsecured. Another variable we can use is the characteristics of the borrowing such as the interest rate percentage, the repayment period, and the verification process.

Let Us Explain How Different Types of Loans Can Be Classified

From the perspective of the lenders, here are the answer for the question, “how many loan types are there?”

1. Payday Loan

Payday loans are payday loan companies’ product. They offer a new type of loan that is easier to access, easier to get, and has a faster verification process. Unemployed people and individuals with poor credit scores can obtain this loan as long as they provide their IDs. However, a payday loan is the most expensive bor with an interest rate as high as 1000% per year.

2. Bank Loan

Bank institutions are one of the most conventional lenders. They usually have different products with different interest rates and different payment periods. However, compared to a payday loan, a bank loan is harder to get. Some will require collateral as well as proof of consistent income. The average interest rate of a bank loan is 12% per year.

3. Government Loan

A government loan is a loan that comes from a government institution, such as the central bank. In Nigeria, it is the CBN. The CBN has several funding or basically loans with lower interest rate. However, getting a government loan is way harder than getting a bank loan.

4. Mortgage Lending

Mortgage companies will lend you money to purchase assets such as a house. You have to repay it back with an interest over a period of time. If you are unable to do it, the mortgage companies will claim the assets you have bought.

How Many Loan Types are There: Secured vs Unsecured Loan

A loan can also be differentiated according to the collateral used. The first category is secured loan. It’s “secured” because, from the lenders’ perspective, they’ll get the collateral if the borrowers are unable to repay the money. Mortgage companies always offer this type of loan.

The second category is unsecured loan. Unsecured loans do not require collateral. It sounds good from the borrowers’ perspective, but the interest rate is always higher.

Banks and government institutions can provide both secured and unsecured loans. However, payday loans are certainly unsecured. It also has the highest interest rate.

How Many Loan Types Are There: Personal vs Specific and Business Loan

Based on how the the debtors use the money, we can differentiate loans into a personal loan and a non-personal loan. With a personal loan we can use the money for a variety of purposes. The debtors can use it to renovate their home, buy a laptop, and do other things.

It’s different from other loans, such as a car loan. We can use a car loan to help us buy the car you want. The car, however, is also the collateral.

Another type of loan is a business loan. In Nigeria, every bank offers this type of borrowing to help the country’s economy. For example, the Stanbic IBTC Bank and Heritage Bank provide special products for Nigerian entrepreneurs with lower interest rates.

How Many Loan Types are There: Student, Farmer, and Business Loans in Nigeria

A loan has its own target. It can target students to help them pay tuition. Or else, it can can also target farmers, teachers, businessmen, and other specific demographics.

Each loan is different and only suits the condition of the specific debtors. Take a student loan, for instance. Since it aims to help students, the debtors can use their parents’ assets as collateral. On the other hand, a loan for a farmer will not require a proof of stable income.

Based on all of the above explanations, we can conclude that there are a total of 12 loans. This is the answer for those asking about how many loan types are there.