personal loan
Personal Loan is money a bank or lender gives you upfront for any need, which you repay in fixed instalments with interest over an agreed time.
In plain English
Think of a personal loan like borrowing sugar from your neighbour, except this neighbour is a bank, they want their sugar back with a little extra, and they write down exactly when each spoonful is due.
You do not need to explain every detail of why you need the money. Rent is due, a laptop just died, a wedding is coming, or you simply need breathing room before the next salary. The lender gives you a lump sum, and you agree to pay it back in fixed instalments, usually monthly, over months or years.
In Nigeria, someone might collect a ₦500,000 personal loan from their bank or a digital lending app to cover school fees, then pay it back over twelve months alongside interest. No collateral like a car or land is usually needed, which is exactly why the interest tends to be higher than a loan backed by something valuable.
In the United Kingdom, a person might take a £5,000 personal loan from their bank to clear a bit of consumer debt or fund a home repair, spread over three years at a fixed rate, so they know exactly what leaves their account every month.
For someone abroad sending money home, a personal loan can be tempting when a family emergency lands suddenly. It is worth pausing to ask what the total repayment will look like, more than how quickly the cash arrives.
The comfort of a personal loan is the fixed structure. The catch is that because there is no security behind it, lenders charge more for the risk they are taking on you.
Ngozi takes a ₦300,000 personal loan from her bank at 24% interest yearly, repayable over 12 months. Her fixed monthly instalment works out to about ₦28,300, and by the end of the year she has paid roughly ₦339,600 in total for money she borrowed today.
Questions people ask
Do I need collateral for a personal loan?
Usually not. Most personal loans are unsecured, which means no property or asset is tied to them, but that is also why the interest rate is often higher than a secured loan.
How is a personal loan different from a credit card?
A personal loan gives you a fixed lump sum with a set repayment plan and end date, while a credit card gives you ongoing available credit you can dip into repeatedly as long as you keep paying it down.
What happens if I miss a repayment?
You will likely face late fees, extra interest, and damage to your credit history, and if it continues, the lender may hand the debt to a collection agency.
Last reviewed