What Constitutes
a Loan: An Overview in the Context of Ghana
Introduction
A loan is a legal contract made by
2 parties when one of them offers means (be it money or property) to the other
with the understanding that certain sum including interests will be returned
after an agreed duration. Out of all the mechanisms of trademark
commercialization in Ghana, Loans tendered support to the development of both
personal and business sectors. Loans can be dispensed by commercial banks,
finance houses, micro credit companies as well as ordinary individuals.
In this
context, it is important for consumers and businesses alike to appreciate the
different types of the loans and the terms and conditions applicable, the legal
requirements, and the obligations of the borrower. This overview examines the
main components of a loan in the specific context of Ghana, characterizes the
loans in the country, identifies factors influencing loan contract and
repayment in the Ghanaian economy.
Components of a Loan
There are several elements that make up a loan, which essentially serve as
the terms/conditions of the agreement between lender and borrower.
1. Principal
The principal is the initial amount of money that was borrowed from the
lender. A good example is when a person borrows GHS 20,000 from the bank – this
amount represents the principal. The borrower pays the principal back plus
interest over regularly scheduled payments throughout the life of a loan.
2. Interest Rate
The interest rate is the price of borrowing that money, expressed as a
percentage of the principal. In Ghana, it is dependent on the borrower and
his/her creditworthiness; nature of loan he wants to borrow and market conditions
at that time. Ghanaian lenders may serve you with the choice of a fixed
interest rate (the interest remains constant through duration of your loan) or
rather adjustable rates.
For instance, the Bank of Ghana (BoG) uses a tool called policy rate to
establish a benchmark interest rate that affects lending rates in the financial
system. Banks and MFI set their interest rates slightly above this policy rate.
3. Loan Tenure
Loan Tenure: Loan tenure or loan repayment period is the time frame in which
the borrower has to mend its debt. If you are looking to get a loan in Kenya,
then the tenures can be different for different loans. Short-term loans may be
as short as 6 months to a year, whereas longterm loan repayment period (as in
mortgages) can range from ten years or even longer. The length of the loan
directly affects how much borrowers pay each month and over time in interest.
4. Collateral
Collateral: Assets that are offered to the lender by a borrower in order to
obtain a loan. The loan may ask borrowers to pledge land, buildings, vehicles
or other valuable assets as a form of collateral in order for the lender to
reduce its risk of default. If the borrower is unable to pay back the loan,
then in such a situation lender can take hold of the property which was kept as
collateral and recover his remaining amount. Collateral is needed for a secured
loan, whereas no collateral in an unsecured one.
For instance, a customer borrowing mortgage loan from bank in Ghana may be
required to singned the property being bought.
5. Loan Agreement
The loan agreement is an official document that describes the terms of a
given fact. It covers specifics such as the amount of the loan, how a interest
rate will be applied to united payments and what happens if you skip someones
cookies are splitted in water next pay. Both the borrower and lender need their
names in writing on a document before any money can be provided.
Under the financial regulations and consumer protection laws in Ghana, loan
agreements need to be fair and transparent between lenders are credit unions.
Types of Loans in Ghana
Ghana offers a variety of different loans, with each servicing individual
financial needs. Here are just a few of the most common types:
1. Personal Loans
A personal loan is a loan that individuals borrow for various purposes,
usually to house improvement or education costs. These are usually given based
on the salary of a borrower along with his repay ability. These loans in Ghana
are personal, have a higher interest rate than secured ones such as mortgage or
car loan.
2. Business Loans
Business loans are used to provide capital for business use, such as
expansion or operational expense or acquiring an asset. In Ghana, microfinance
institutions, banks and government programs provide a lot of different types of
business loans for small as well as medium sized enterprises (SMEs). This, of
course has everything to do with the requirements that financial institutions
put in place for business loans — they can either be secured or unsecured.
The Bank of Ghana (BoG) and the Government of Ghana have also launched
initiatives to ease access to finance for SMEs- often providing below-market
rate loans, under programs such as GIRSAL – The Ghana Incentive-Based Risk
Sharing System for Agricultural Lending.
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