Every day, Nigerians enter loan agreements from banks, microfinance
institutions, online lending apps, and even informal moneylenders.
Yet, many sign without fully understanding what they’re committing to.
A loan agreement isn’t just paperwork; it’s a legally binding contract.
It defines your rights, obligations, and the lender’s powers.
Understanding it could be the difference between financial relief and financial
ruin.
2.WHO IS A LENDER IN NIGERIA?
Under Nigerian law, not everyone can validly lend money for profit. The law
recognizes specific categories:
i.Commercial and Microfinance Banks Licensed by the Central Bank of Nigeria
(CBN) under the Banks and Other Financial Institutions Act (BOFIA 2020).
They can lawfully grant loans and charge interest.
Examples: Access Bank, GTCO, Zenith Bank, LAPO Microfinance Bank, etc.
ii. Licensed Moneylenders
Governed by the Moneylenders Laws of various states (e.g., Lagos, Plateau, and
Abuja).
Note They must obtain both a Moneylender’s Certificate and License from the
state Magistrate Court. If a person or company lends money without this license,
the loan is illegal and unenforceable in court.
iii. Digital and Online Lenders
Must be registered with the Corporate Affairs Commission (CAC) and
Approved under the FCCPC/CBN/ICPC Joint Guidelines for Digital Lending
(2022).
Many unregistered apps operate illegally as they violate data privacy and fair
lending rules.
iv.Cooperative Societies
Can lend to their members under the Cooperative Societies Act,
But they cannot publicly lend to non-members or operate as commercial lenders.
3.WHY THIS MATTERS
Borrowing from unlicensed lenders exposes you to:
∙Unlawful or excessive interest rates.
∙Harassment, blackmail, and data misuse.
∙Contracts that cannot be enforced in court.
In simple terms:
If your lender isn’t licensed, the law won’t recognize their contract.
4.KEY PARTS OF A LOAN AGREEMENT
A proper Nigerian loan agreement should include:
∙Principal Amount – the money borrowed.
∙ Interest Rate – stated clearly as monthly or annual.
∙Repayment Schedule – how and when you’ll repay.
∙Default Clause – penalties or actions on late payment.
∙ Collateral or Security – assets pledged for repayment.
∙Dispute Resolution Clause – how conflicts will be resolved.
∙Governing Law – usually Nigerian law.
5.UNDERSTANDING INTEREST CLAUSES
The interest clause is the heart of the loan. It determines how much you actually
pay back.
Types of Interest:
∙Fixed Interest: same rate throughout the loan term.
∙Variable Interest: fluctuates with market or CBN rate.
∙Compound Interest: interest on both the principal and accumulated interest.
Always confirm:
∙Whether the rate is monthly or per annum.
∙Whether it’s simple or compound interest.
∙If the lender can change it unilaterally — that’s a red flag.
6.REGULATION AND BORROWER PROTECTION
∙CBN regulates banks and licensed microfinance lenders.
∙State Governments regulate moneylenders.
∙FCCPC protects consumers from unfair lending practices.
∙NITDA enforces data privacy under the NDPA (2023).
Borrowers are protected by:
∙CBN Consumer Protection Framework (2022)
∙FCCPC/CBN Joint Guidelines for Digital Lending (2022)
You can file complaints to CBN, FCCPC, or NITDA against unlawful lenders.
7.COMMON TRAPS TO WATCH FOR
∙Clauses that say “Lender may vary the rate at any time.”
∙Excessive default interest (e.g., 30–40%).
∙Hidden charges (processing fees, admin fees, insurance).
∙Penalties for early repayment.
∙Threats and data abuse during debt recovery — which are illegal.
8.PRACTICAL TIPS BEFORE YOU SIGN
✅ Verify that the lender is licensed.
✅ Ask for the total repayment amount — not just the interest rate.
✅ Read every clause, especially around defaults and interest.
✅ Keep a copy of everything you sign.
✅ Consult a lawyer if you don’t understand any term.
9.CASE EXAMPLE
Mr. A borrows N500, 000 from an unlicensed loan app at 20% monthly interest.
By the 5th month, he owes N800, 000, and the app sends defamatory messages to his
contacts.
Legal reality:
∙The loan contract is void under the Moneylenders Law.
∙Mr. A may sue for defamation and breach of data privacy,
But cannot be forced to pay under an illegal contract.
10.CONCLUSION
In Nigeria, borrowing money is easy understanding the terms is the hard part.
Before you sign, make sure:
a.The lender is authorized by law.
b.The interest and repayment terms are clear.
c.You’ve sought legal advice.
Remember, ignorance of a clause is not a defense but knowledge is protection.
