Have you found yourself in some financial difficulty and are thinking of what steps to take to pay back your current personal loans? Look no further as the answers you seek are at your fingertips.
Paying back a loan can be tricky as your ability to repay is sometimes left to chance. No one delays their loan repayments intentionally. But missing a loan repayment can damage your credit rating.
If you are finding it difficult to manage your loan repayments, there are steps you can take to help you pay off your debt efficiently.
What is a personal loan?
Personal loans can help you finance most major purchases, from an engagement ring to home repairs, often at a lower interest rate than paying with a credit card.
And if you’re stuck with a bunch of high-interest credit card debt, you can take out a personal loan to consolidate the balances and lower the overall APRs, thus removing the hassle of juggling too many monthly payments at once.
But like any kind of financial product, personal loans have trade-offs, including fees and interest rates. Consumers should think carefully before applying for loans since they can impact their credit scores and overall financial health.
More details on a personal loan
A personal loan is a form of installment credit. A personal loan delivers a one-time payment of cash to borrowers. Borrowers then get to pay back that amount plus interest in regular, monthly installments over the lifetime of the loan, known as its term.
Due to new legislation and the rise of digital banking, there are many platforms offering loan apps in Nigeria. From application to approval, the process usually takes less than 10 minutes.
Other than the interest personal loans are known to charge, borrowers (especially first-time borrowers) might also run into other fees, such as an origination or administrative fee that gets taken out of your loan amount once you’re approved.
How do personal loans work?
Once you’re approved for a personal loan in Nigeria, the cash is usually delivered directly to your bank account. If you’re getting a loan to refinance existing debt, you can sometimes request that your lender pay your bills directly.
However you get your funds, prepare to start repayment within 30 days. Some loan apps in Nigeria require that you start repayment within 14 days. If you have a fixed-rate loan, your monthly installments will stay the same amount until the loan is paid off.
If you have a variable-rate loan, your interest rate will fluctuate and could change the amount you owe month to month.
When your personal loan is paid off, the credit line is closed. You will no longer have access to it.
How to apply for a personal loan
Do some research before you apply for a personal loan. Read reviews and learn what to consider before taking out a loan. nairaCompare has curated a list of the best personal loan apps in Nigeria.
Having decided on what platform to patronise, and you’re ready to apply, follow these steps below to ensure that your loan application is seamless.
Shop around for the best rate. Be sure to make the right inquiries by checking what you qualify for before submitting your application.
When you apply for the loan, you will be required to submit some documentation such as proof of residence usually in the form of a utility bill, proof of employment or proof of income for business people, and a government-issued identification among others.
Once you submitted all that is required of you, you can then sit back and wait for a loan decision from the loan provider. This could take anything from minutes to about an hour.
If your loan is approved, the funds are immediately made available to the bank account you provided during the application process. Get your funds.
Steps to pay back your personal loans
Right from the application stage to processing and getting your money, taking a personal loan is a pretty straightforward process if you have the right credit score.
The tough part begins when you’ve to start paying your loan. Just like any other loan, you can repay your personal loan in monthly installments.
But managing a monthly repayment isn’t a cakewalk. It takes a lot of effort and discipline to set aside a repayment amount for each month. Especially with the ongoing global financial crisis largely caused by the coronavirus pandemic, Sometimes you may actually miss a payment due to an emergency that’s uncalled for.
Below are tips to help you strategise and plan your personal loan repayments more efficiently.
Create a budget
The first and perhaps the most important step in strategizing your repayment should ideally require you to set a budget. When you take out a loan, it is imperative that you become mindful of where you’re spending your money.
It is important to keep track of how much money you’ll be left with, once you set aside your monthly repayment amount. For this step, you can simply use budgeting apps that offer you the convenience of keeping your monthly expenditure in check.
These apps not only help you cap your monthly expenses but also provide the functionality of saving pots and goals, which can be used to save money for your installment.
Opt for the direct debit option
Direct debit means that your monthly installments will automatically be deducted from your bank account. This ensures timely repayments and reduces your chance of missing a payment.
There’s a fair chance your lender offers a discount on pre-authorized or automatic payments, which will help you save some money on your monthly installment.
Refinance your debt
Though this option is not so popular, if you have multiple debts on you, a practical way to make payments more manageable would be to combine your loans into one, using debt consolidation or refinancing.
Taking a debt consolidation loan will cover all your ongoing loans. All you now have to do is pay your debt consolidation loan.
While debt consolidation is a way to make repayment less complex, you should resort to it only if the interest rate on this loan is lower than the combined interest on all your existing loans.
You should consider this option if you have a good credit score and a low debt-to-income ratio (generally below 43%).
Read the letter
When it comes to paying off one’s debt, there is the temptation to want to get rid of it as soon as possible. Often when a loan term is close to its end, you may feel tempted to pay extra and go debt-free.
Depending on the lender, you may be charged extra if you choose to repay the loan in full, before the end of the term. They usually mention this in the fine print hence you should always read the letter.
Similarly, if your lender charges only a minor prepayment fee on a higher-interest loan, you may actually be better off paying the loan early.
Therefore, it is imperative that you thoroughly go through the paperwork, before making hasty decisions.
Keep an eye on your account
As obvious as this step seems, sometimes you may not be aware of your account’s status. Therefore, it is important to frequently check the balance of the account through which you are repaying your loan.
You can use mobile applications that most banks provide nowadays, to keep a track of your account balance. If you’re using a saving app, you can use algorithms to set up rules that alert you every time your account balance falls beyond a certain limit.
Other things to note
In the event that you’re unable to make a repayment, you should discuss it with your lender. Your lender will help you pan out a solution to this.
The sooner you come clean to your lender, the less you’ll fall behind your repayments. If you fail to do so, the lender might press charges against you, which will put you in more jeopardy.
If you miss a payment as a one-off event, you’ll most likely only be charged a late payment fee.
Gauge your options before accepting a loan offer. With nairaCompare, you can compare loans from multiple lenders, based on real interest rates, with just one single application form.