It's a typical hot sunny afternoon in Lagos, and Chima is sitting in his provision shop with the eagerness of a salesman. "Ping", his phone notification goes off, and with excitement in his eyes, he reads the approval email for his loan. 

However, his joy vanishes when he sees the high interest rate on the loan. Chima’s story isn’t uncommon, with Nigeria’s average bank lending rate hovering around 18.49% per annum, he’s not the only one taking out loans at a cost

Loans are great for boosting your business, funding your education, and handling emergencies, but it's essential to know the ropes of getting one so as not to fall into the trap of bad debt. In this article, we'll explore 10 smart rules every Nigerian should know before taking a Loan.

What is a Loan and How Does it Work?

A Loan is money you borrow from a lender, such as a bank, online lender, or credit union, with an agreement to repay it over time, typically with interest.

The repayment terms, interest rates, terms and conditions, etc, are usually agreed upon before the loan is disbursed. Whether you're sorting out family emergencies or growing your business, a loan can be helpful if you take it wisely. 

How to Take a Loan

Before you take that loan, here are a few things to consider;

• Identify your need: Are you borrowing for school fees, emergencies, or business purposes? This will determine the kind of loan you need to take.

• Check if you qualify: Factors that can determine your loan qualification include your income, credit history, existing debts, and other relevant financial information. 

• Application: Apply for the loan by submitting the necessary documents to the lending institution.

• Approval: If you meet the lender's criteria, your loan is approved

• Disbursement: After the loan is approved, the loan amount is disbursed to you either in lump sums or instalments.

• Repayment: You repay the loan over a specified period, which includes both the principal (the original loan amount) and the interest.

The process looks straightforward, right? It's meant to be. However, it can be tricky and complicated if you don't pay attention to hidden charges, unrealistic repayment periods, or penalties.

5 Rules for Taking out a Safe Loan in Nigeria

Before you jump into any loan, take a step back. The wrong loan can stress your business, but the right one can help you grow with ease. These five simple rules will help you borrow wisely, avoid hidden traps, and make better money moves.

1. Properly Understand the Real Cost of the Loan Before Borrowing

When borrowing, don't just look at the entire amount of the loan; consider everything you'll have to repay. This includes charges for setting up the loan, interest rates, and late payment penalties. 

For instance, let's say you borrow N1 million with an interest rate of 3% per month; you'll have to pay back N30,000 monthly. Other factors to consider include the loan clauses, terms and conditions, and any additional charges beyond the interest rate.

2. No Rush - Compare your Loan Options First

Ensure you compare your loan options carefully before making a commitment. While some options might charge hidden fees, others can delay disbursements. Compare lending institutions, such as banks, fintech companies, and cooperative societies. 

Consider their various interest rates, flexible repayment terms, customer support, and other factors to save yourself significant money in the long run.

3. Know Your Credit Score and Why It Matters

Your credit score is a crucial factor in determining whether lenders will approve your loan and how reliable you are in repaying it. Improve your credit score by regularly checking it and paying off any outstanding debts. 

In Nigeria, you can easily check your credit score on the CRC Credit Bureau. Simply dial 5658# to receive one free credit report per year.

4. Have a Clear Repayment Plan

Before signing off that application form and proceeding to submit it, be sure to ask yourself if you have a realistic and clear repayment plan. Before borrowing, break down your monthly earnings and weekly sales, and clearly outline how much you can repay monthly. 

Late repayments can result in penalties and fines, which can damage your credit history and hinder future loan opportunities. Only commit to taking out a loan once you've verified that you can pay it back on time.

5. Only Borrow What You Truly Need

It can be tempting to borrow more than what you need, especially when it's offered to you. Remember that each naira borrowed comes with an interest attached, which can cause financial stress when repaying if not properly planned. You should take out a loan to solve problems, not fund a lavish lifestyle.

Where to Take the Best Loans

Running a business is not easy, sometimes, you just need cash to stock up or address urgent needs. That's where Moniepoint Working Capital Loans come in. You can borrow from ₦1 million upwards without collateral. 

The interest rate is fair (approximately 20–40% per annum), and you can expect to receive the money within 1–3 days after approval. Repayment is also flexible—you pay in instalments based on your sales.

Everything happens from your Moniepoint business dashboard. There is no paperwork. No long talk. Just money when you need it to keep your business going.

Ready to grow your business with less stress? Apply for a Moniepoint loan today.

Final Words

Taking a loan can help your business grow—but only if you do it right. Always understand the full cost, compare lenders, review the repayment terms, and borrow only what you need with a solid plan to repay. 

Smart borrowing is part of smart business. Ready to take control of your business finances?

Sign up on the Moniepoint Business Bank app today and apply for a collateral-free loan built to support your hustle.