High loan charges

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I got one such conversation with a friend, he told me he has a debt to clear off within a few days. He entered into a bank loan and the figures to pay back amounted in hundreds of thousands.

First when discussing with me his appearance was so uncomfortable; ‘guy I am in debt he said’. My reply was a little shocking to him. What type of debt are you in? ‘debt is debt, was his reply’. I had to rearrange his mentality here. That was when have him a quick financial education on the two types of debts.

You should probably have heard of ‘good debt and bad debt’. This was where I had to tell him, if you are in a good debt it is good but if it is a bad debt then it is bad. He was astonished anyway that my mentality of his situation was very different. From here he had to explain what he took the loan for. From his explanation, it was a good debt, just that his mentality at the moment was short term. He took the debt to invest on a crypto project he was expecting to boom.

The price of it has died down anyway in a time when he needed to take profit the most. How sure are you of the crypto project was my Next question, he said overtime it will appreciate but just that he doesn't have that time now.

Where you are in it on a long term and he replied no. Then find other ways to cover your debts, you are in a good debt. His face brightened up after my suggestion. I have discussed this long term investment mentality many times. It is one of the easiest way to make wealth.

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Anyway, that is not the topic for today, I was just trying to capture the ‘loan experience’ he is having with the banks. Traditional banks over here are not in any means friendly with interest rates. In short, as we speak, many citizens have stood to give a public complaint to the government that they feel extorted. I can't doubt this, at least I have a little experience about this.

Monthly interest rate paybacks are high as if you are about to invest the money on hold. That was why I had to first ask him what he used the money for because if it was just for consumption then it would have been a very bad one.

I never bothered asking him how much he borrowed to get in such debt but at least I know we are talking of a 20% interest rate payback within 30 days.

This is very high when considering how much this traditional bank's APR looks like annually. (Note: I said annually when they are charging monthly).

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The best I have found paid 20% annually, others are at 15% while the big reputable banks pay even lesser percentages. I think banks are just used to extortion, they are really making it a feature. The government has responded they will be looking into this. They really have to, I mean such interest paybacks within 30 days is very outrageous. Fail to pay and your credit score is at risk, something I must advise is really worth avoiding.

From a report I got, some bank loan apps claim they are just middlemen scrapping out a few interests as they have to pay the banks themselves too.

So it is like smaller banks relying on the big ones for cash flow. The idea is to create the needed liquidity to offer the best of lending services. Lending services has its risk too anyway, sometimes it gets very difficult to get back both the lended amount and the interest charged.

Nevertheless, this risk has been mitigated following the fact appliers have to give out sensitive details like BVN (Bank Verification Number) and NIN (National Identify Number). It is easy from here to track down defaulters and automatically withdraw from their accounts when the due date is exceeded. The risk is even on both sides to be very sincere; the high charges are likely to make loanees defaulters which will affect their credit scores.

To conclude, let me add, the high interest rates by traditional banks and loan apps are getting out of hope. Let's just hope the government intercede early enough. I once talked about how ALL this opens doors for cryptocurrency and web3 investment opportunities.

I see a future where many will shift attention from these traditional systems and rely on DeFi which will charge a reasonable amount when getting all this quick loan. I feel when such competition becomes rampart they will adjust.

Posted Using INLEO