There are type of loans in Ghana you should know, but first you must know which one best suits your needs. Also, think about the purpose of the money and the amount involved before you apply for a loan. In addition, you also have to compare interest rates, terms and loan amount before deciding the type of loan that is best for you.
When comparing loans, you will discover credit score is very crucial regarding the type of loan. As it helps determine whether the lender will approve your request in terms of loan terms and interest rate.
What is a loan?
A loan is a sum of money you can borrow from a lender or a financial institution to help manage unplanned and planned events. This makes the borrower incur a debt with the lenders, which he will pay by installment with interest.
The lender and the borrower agree on the loan terms before approval and exchange of money. Many times, they will require an asset as collateral, which will still be part of the agreement. The idea behind taking a loan is to manage financial necessities and also to grow one’s money supply in terms of business loan. While the lender uses the interest on the loan to generate revenue.
Types of loan in Ghana
There are many types of loan you can get in Ghana. These loans help you manage your financial needs depending on the purpose of the loan. Some type of loans in Ghana you should know include:
1. Secured personal loans
To apply for a secured personal loan, you will offer an asset as a collateral. The asset could be a certificate of deposit, a landed property, or even a car.
Secured personal loans sometimes come with lower interest rates than unsecured personal loans. This is because the financial institution/lender usually considers a secured loan to be less risky. In cases of default with a loan, you can lose your asset that serves as collateral to the lender. Most Ghanaians apply for secured loans when they want to borrow sizable sums of money, as lenders always require collateral for enormous amounts. Some features of a secured loan include strict borrowing limits, interest rate and long repayment periods. Examples of secured borrowings are an auto loan, mortgage, and boat loan..
2. Unsecured personal loans
We use personal loans for a variety of reasons, from paying for rent, for wedding expenses, to holiday trips. Personal loans are usually unsecured loans, this means you are not bringing any collateral in case you default.
Unsecured loan is best for debt consolidation and other major purchases. A personal loan can help you pay off debt when you have a high interest credit card debt. Meanwhile, a high credit score helps you get better loan terms. Eligibility for an unsecured loan is very easy, even with a bad or fair credit. Examples of unsecured loan include education loan, personal loan and credit card purchase loan.
3. Payday loans
These are short term, but high-cost loans in Ghana that are due on your next payday. To pay back the loan, you will need to write a post-dated check. You can also allow the financial institution/lender to withdraw the amount you are owing. Including the interest and extra charges from your bank account. Payday loans in Ghana are best for an emergency when you have no other option.
4. Pawn shop loans
This is another fast cash borrowing option in Ghana. You apply for this loan when you purchase an item of value, like a piece of jewelry, into a pawnshop, then borrow money based on the item’s value. Pawn shop loans are best for small loan amounts with no credit check, though it comes with a high interest rate.
5. Open-End and Closed-End Loans
An open-end and closed-end loan is a loan that you have the liberty to borrow money over and over. Lines of credit and credit cards are examples of open-ended loans, though both have credit restrictions. A credit limit is the highest money you can borrow at any point.
Depending on your financial need, you can use all or just a portion of your credit limit. Examples of this type of loan include student loan and mortgage loan.
6. Payday alternative loans
This is a short-term loan some federal credit unions offer their customers. This type of loan has longer repayment terms with lower interest rates.
7. Home equity loans
A home equity loan is a type of secured loan where you use your home as collateral to borrow money. The amount you can borrow depends on the equity you have in your home. Meanwhile. the difference between how much you owe in your home’s market value and how much you owe on your home.
8. Credit card cash advances
This is best for paying cash, and it is a short-term loan you borrow against the balance on a prime interest and extra charges. However, before you think about borrowing money with a credit card cash advance, always set your budget. This helps you know the much you can afford to pay back on a monthly basis.
Considerations before applying for a loan
For individuals considering applying for loans, there are a few things you need to have in mind before applying for a loan.
1. Credit score and history
Having a good credit score and history shows the lender that you can pay back the loan on time. However, the higher the credit score, the higher the chances of getting approval for a loan and favourable terms.
It is very necessary to test your income before applying for any kind of loan as this helps you to know whether you can pay back without default.This also requires an employee in Ghana to submit a salary letter from the employer. Meanwhile, if the individual is self-employed, they will require you to invoices and tax returns for two to three years.
3. Monthly Obligations
Besides your income, evaluation of monthly obligations is very important. This is very essential because most lenders in Ghana may not be willing to offer loan to you if your monthly obligations are almost equal to your monthly income. This is part of the reasons most lenders in Ghana add monthly obligation lists as part of their requirements.
A loan is a sum of money that you borrow from a lender or financial institution to enable you to manage your needs. Loans in Ghana have so many classifications and types based on the purpose of the loan. However, regardless of the loan that you choose to apply for in Ghana, always consider your monthly income, credit score, and obligations before applying. As this helps you discover the right loan, you need at any point in time.
Speaking of the type of loans in Ghana you should know, there is also have alternatives in credit union loans. Besides that, you could consider peer-to-peer lending Ghana if you do not want to get a loan from any financial institution.