A loan can be defined as the act of lending money to an individual or organization for a specific period of time with the aim of paying
interest on the loan as at when due. The interest so paid can be referred to as the profit for giving out the loan. Interest on loan is based on percentage. In this case, the higher the loan, the higher the percentage and vice versa.
Types of loans
There are different types of loan depending on the purpose. These include; student loans, mortgage loans, auto loans, personal loans and
small business loans.
How to get a loan
Loans can be gotten from microfinance banks and commercial banks. Stated below are the different ways of acquiring loans.
1. Family and friends: Loans can be gotten from family members or friends. Some of the loans gotten through this means don’t attract interest since some level of relationship exists between the two parties and payment is stretched over a long period.
2.Trade credit: This is when a customer buys goods on credit from a trader due to regular patronization. Payment is later made at an agreed date.
3. Credit/ Thrift cooperative societies: This is a society where members contribute a certain amount and each member loans from the amount in turns. This type of loan attracts very little interest.
4. Short term loan: This type of loan lasts for six month and attracts little interest. This loan is issued by micro finance banks in Nigeria.
5. Medium term loan: Payment for this type of loan ranges from six months to one year. It is issued mainly by commercial banks.
6. Long term loans: Payment for this type of loan can last for two years or more and attracts a higher interest rate. Commercial banks and mortgage banks provide this type of loan.