Introduction
Interest rates play a critical role in determining the affordability of loans. A low-interest loan can be a game-changer, while high-interest rates can make borrowing expensive. Understanding how interest rates work is key to making informed financial decisions.
What Influences Interest Rates?
- Central Bank Policies – The Central Bank of Nigeria (CBN) sets benchmark rates, impacting overall lending rates.
- Market Demand & Supply – When demand for loans is high, interest rates may increase.
- Inflation & Economic Stability – Higher inflation leads to higher interest rates as lenders adjust for purchasing power.
- Creditworthiness – Borrowers with strong credit histories get lower interest rates, while high-risk borrowers pay more.
Loan Accessibility & Challenges
- Strict Eligibility Criteria – Many borrowers are denied loans due to credit score or income requirements.
- Collateral Requirements – Some lenders demand assets to secure loans, making it tough for those without valuable collateral.
- Limited Loan Options – Some financial institutions only provide loans to established businesses or salaried workers, leaving entrepreneurs and informal sector workers with fewer choices.
How to Secure Affordable Loans
- Improve Your Credit Score – Pay bills on time, reduce debt, and maintain responsible financial behavior.
- Compare Different Lenders – Research and compare interest rates before choosing a lender.
- Consider Government-Backed Loans – Certain schemes offer lower-interest loans for businesses and individuals.
Conclusion
Interest rates and loan accessibility determine who can borrow and under what terms. Borrowers must understand these factors to secure favorable loan terms and avoid financial strain.
