Loans in Ghana serve as the financial backup for borrowers. There are many needs that require immediate attention that emergency loans can cater to. Whilst some people choose to take out personal loans to meet their personal needs. Alternatively, they could get a business loan to grow their business operations, and so on. There are, however, other forms of loans available from financial institutions for a variety of purposes. However, it’s not ideal to get a loan you cannot repay within the time frame you agreed with the borrower. Let’s explore the meaning of loan, the types, pros and cons and so on in this article.
What is a loan?
A loan is a sum of money that an individual or companies borrow from financial institutions. This money helps them sort planned or unplanned events and other needs. Hence, the borrower incurs a debt. The borrower has to pay back with interest within a stipulated time. It can also mean money you receive from a bank, friend, or financial institution with a future repayment of the principal and interest.There should be an agreement between lenders and borrowers regarding terms of the loan. They do this before they give the money to the borrower.
Most times, financial institutions in Ghana require the applicant or borrower to present an asset as collateral. They always outline the collateral in the loan document. Financial institutions give loans to individuals, business owners, companies, and governments. The major reason for taking out loans is to get funds to solve one’s needs. The interest rates and additional fees are a source of revenue for the financial institution/lender.
Forms of Loans in Ghana
There are many forms of loans in Ghana. You’d apply for a particular type of loan based on what you need it for. They categorise loans in Ghana into secured and unsecured, open-end and closed-end, and conventional types.
1. Secured and Unsecured Loans
A secured loan is a loan with some form of collateral. For example, many financial institutions require applicants/borrowers to bring documents that show ownership of assets. They hold on to this asset as collateral until the borrower repays the loans in full. Assets that serve as collateral include personal property, stocks, and bonds. Many individuals and companies apply for secured loans when they want to borrow enormous sums of money. The asset/collateral serve as a guarantee.
Features of secured loans include:
- Borrowing limit
- Low interest rates, and
- Long repayment duration.
- Examples of secured loans are car loans and mortgages.
Invariably, an unsecured loan is a loan with no asset as collateral. That is why the name “unsecured loan”. The financial institution assesses the borrower’s financial background before giving out the loan. They do this to ensure the borrower’s capability of repaying the loan. The major deal is not in borrowing, but repayment. This is because the posterity of most financial institutions that offer loans is in interest and recovery of money.
Features of unsecured loans include:
- Borrowing limit
- Short repayment period
- Competitive interest
- Examples of unsecured loans are education loans, credit card purchase, and personal loans.
2. Open-end and Closed-end Loans
An open-end loan is a loan where an individual has the liberty to borrow over and over. Examples of an open-end loan are lines of credits and credit cards, though there are credit restrictions. The highest sum of money that you can borrow at a time is what we know as a credit limit.
Closed-end loans do not allow individuals to borrow when they have borrowed until they have repaid them. As a borrower, makes repayments of the closed-end loan. There is a decrease in balances.
Hence, whenever the borrower wants more money. He/she will apply for another loan from scratch. However, the borrower needs to present documents to prove that they are credit-worthy. Some examples of closed-end loans include student loans, car loans, and mortgages.
3. Conventional Loans
This is a loan that you’d use when applying for a mortgage. This loan has no insurance by government agencies. One example of conventional loan is Rural Housing Service (RHS).
What are the things to consider before applying for a loan in Ghana?
As a prospective applicant, there are few things you need to consider before you apply for a loan in Ghana. Some of these considerations are:
Income is a major consideration and assessment before applying for any kind of loan. For instance, an employee needs to submit pay slips. Also, a salary letter from their employer. However, if the applicant is a business owner. He/she needs to submit his tax return for the past one or more years. They can require your invoices sometimes.
2. Credit History and Credit Score
An applicant’s good credit history and score is a sign that he/she can pay back within agreed time. The chances of getting your loan approved solely depend on the credit score. Also, a good credit history and score attract a favourable term.
3. Monthly Obligations
This is another major key consideration when applying for loans. Apart from income, it is utmost important to assess monthly obligations. Financial institutions will not be willing to approve your loan when your monthly obligations are equal to your income. This is part of the reason most financial institutions require a list of monthly expenses .
Types of Loans in Ghana
The loans in Ghana vary regarding the purpose for the loan. There are various types of loans in Ghana with different terms and conditions. Types of loans in Ghana include:
1. Personal loans
Almost all financial institutions offer personal loans. This type of loan can serve various purposes. You have the liberty to use it however you like once it is your personal needs. Personal loans are often easy to get when you have an average credit score and history. Although they are mostly unsecure. It is usually a small amount of money with a high interest rate.
2. Cash advances
This is money you get in advance from payday loan institutions or your credit card company. Borrowers apply for cash advances when they need quick money. Cash advances are easy to get, though they come with a high interest rate. It is also a small amount of money with a high interest rate.
3. Mortgage loans
This is a loan with an enormous amount of money. It is a loan for real estate or purchase of a house. Mortgage loan is a secured loan. The property you are purchasing can be the security for the loan. This means that if you don’t repay back on time, the financial institution can take back the property. Mortgage loans in Ghana help you purchase a house that takes many years to save for. They come with a long-term repayment period. The interest rate is relatively low and tax deductible.
4. Home-equity loans and lines of credit
This is the type of loan where homeowners can borrow against equity. The loan amount or equity is the difference between the key value of your home and the debt of your mortgage. These loans are good for home improvements or debt consolidation. It has a low interest rate.
5. Student loans
These are loans that help you finance a college education.one of the benefits of this loan is that you don’t have to pay back while a full-time college student. It has a competitive interest rate.
6. Debt Consolidation Loans
A consolidation loan is the combining of multiple bills for credit cards into a single debt. The repayment is by one monthly payment. This means lower interest rates and fewer payments each month.
7. Payday Loans
This is a short-term loan with a high-interest. They design payday loans to bridge the gap from one paycheck to the other. They use payday loans by repeat borrowers living paycheck to paycheck. Interest rate on payday loans is very high.
8. Small business loans
Many financial institutions in Ghana offer this loan as a start-up for businesses. Small business loans have security. You will need to submit some personal assets as collateral. They require a business plan as evidence. Small business loans come with low interest rates.
9. Car loans or Auto Loans
This is a secured type of loan for property. They use it for the purchase of a vehicle. You can also lose the vehicle to the financial institution when you don’t pay back as supposed. Apart from financial institutions, this loan can come from dealerships. Auto loans from dealerships always have a high interest rate.
What type of loan in Ghana should I apply for?
After you have taken a decision to source for a loan. There is a need to understand the agreement of that loan. Also, you need to consider the assets you’ll have as collateral. Make more enquiries in any part of the agreement you don’t understand.
Also, always bear the repayment terms, your monthly obligation in mind, not forgetting the consequences of missing payments.
Advantages of Loans in Ghana
Loans in Ghana have a lot of advantages. These benefits motivate the residents of Ghana to source for loans when facing financial limitations. Some benefits of loans in Ghana include:
- Convenient and quick application.
- Competitive interest rate.
- Fast documentation process.
- Considerable repayment period.
List of financial institutions that offer loans in Ghana
Below are some of the financial institutions in Ghana that offer various loans above:
- Fidelity Bank Ghana
- CalBank Plc
- Republic Bank Ghana
- Fido Money Lending
- Bayport Ghana Savings and Loans
- SamBoad Business Group LLCF
- GN Savings and loans
- SRF Money lending services
- Jireh Microfinance Ltd
- Izwe Savings & Loans Ghana
- Quick Credit & Investment Micro Credit Ltd.
- Dalex Finance and Leasing Company Ltd
- Christella Software Solutions
- SIDE Capital Campus Loan
- CIANO loans
- SIC & SIC Life Insurance
- BayPort Financial Services
- Multiseed Micro Credit Services Ltd
- STAR Microfinance
- Best Trust Capital
A loan is a sum of money that an individual or company borrows from a financial institution. Loans link borrowers and lenders. There are many types of loans depending on the purpose you need them for me. However, remember to consider those things we mentioned above before applying for a loan. This is because it’s better not to get a loan you cannot repay than getting it. For it will alert credit bureaus who check how faithful you are with your debt repayments. And if they find you wanting, they’ll penalize you and because of this you might not accept any form of loan anytime soon.