Connect with us

Financial Literacy

9 easy steps to negotiate out of a bad loan

Anything more than that sets you on the path of financial crisis as the risk of default is mostly higher. But how then does one get out of financial crisis related to the burden of loans? I will attempt to give tips. #LOANTIPS #DEBTS



bad, loan, start, business, my, right, When is the right time to start my business?

Every now and then I meet people howling about their debt burden and how it’s making life difficult for them. Some of the loans are consumer loans used to buy a car, finance a pet project or even pay for house rent. I have always believed that your loan repayment per month should never be more than 40% of your salary or monthly income.

Anything more than that sets you on the path of financial crisis as the risk of default is mostly higher. But how then does one get out of financial crisis related to the burden of loans? I will attempt to give tips. As usual we will depict a real life situation for better guidance

Example: Wale decided it was time to take a loan since landing his new job in 2016. He borrows N2.6m to buy a tokumbo car and the balance to pay for a new 3 bedroom apartment he just moved to. He earns a take home salary of N200k a month and currently pays N80k to the bank as loan. He also spends on average N80k monthly in living expenses such as feeding, transportation, wardrobe, entertainment etc. leaving him with N40k as savings.
Suddenly his company faces a financial situation and decide to slash salaries and cut staff strength. Fortunately or unfortunately Wale is not sacked but told to take a pay cut of N60k dropping his monthly take home pay to N140. He suddenly finds himself in deep financial waters as his loan repayment is now more than half his take home pay.
He currently owes the bank N1.3m (excluding future interest) after paying back half of the loan which was about N3.8b (including principal of N2.6m and interest). Since taking his pay cut in November 2018 he has defaulted twice in repaying his loan as his expenses almost doubled after getting married. The banks have written him severally and have now decided to act. What should Wale do?

Step 1: Don’t be afraid and never get depressed.

In a capitalist society even the richest of men owe. In fact they owe billions and are often soothed rather than chastised when the bank man comes. The main reason for this is that no bank wants litigation (even if the outcome will favour them). So, as much as you are in deep financial mess they also are. In Nigeria, banks tend to fire small loan borrowers with also sort of threatening letters, like warning that they will write your employers, seize your car or any other collateral assets etc. At the end of the day, an amicable solution is always better preferred.

Step 2. Ask yourself honest questions

Can I sustain this lifestyle? Should I sell my Car to repay part of the loan? How much can I really repay the bank within the current circumstances? All I really need to do is either repay the loan out-rightly, get a new job or simply just reduce the amount I pay the bank monthly. The following steps will be based on my decision to reduce the amount I pay to the bank monthly.

Step 3. How much can I possibly pay the bank now?

When Wale was taking home N200k he was paying N80k as loan or 40% of net income. To remain at 40% of that figure, he will need to pay the bank N56k monthly leaving him with N84k. Since he is newly married he believes he needs at least N100k monthly to meet up with the demands of marriage even if it means him not saving. Therefore, the needs to pay the bank N40k monthly, that is half his original pay.
Step 4. Acquaint with loan realities

BAD LOAN NEGOTIATIONNow that you have decided how much you can afford to pay the bank, the next step is to determine what that means in the overall context of the loan. If you owe N1.3m and you wish to repay N40k monthly at an interest rate of 20% then the no of years you are looking to complete the loan will now be 4 years or 47months.

What this essentially means is that the loan which was to last 4 years will now extend to 6years. Remember Wale had paid for 2 year and had 2 left and to accommodate his N40k repayment, he needs to add two more years. This move whilst a cash flow relief will bring additional interest cost almost 100% of the loan value at the end of the payment.

You could also decide to adopt a progressive repayment rather than a uniform one. That is pay N40k for the first year and N60k the next and N80k till the loan is liquidated. This method does the twin job of giving you temporal relief while anticipating an improved cash flow and also helping contain the high interest cost associated with longer tenors.

GTBank 728 x 90

[Read Also: Half-Year 2019: Access Bank release financial results]

Step 5: Approach your bank

BAD LOAN NEGOTIATIONNever get shy about telling your bankers your financial predicaments. Remember your success/failures is directly proportionate to theirs so its always in their best interest when you show intent to repay their loans. Set up a meeting with them at a place of your convenience, make sure its a discussion over lunch or drinks as that creates a friendly environment.

Tell them your plans in the clearest form and give an impression its a honest and well thought out now. Make them understand its a win win situation and actually benefits the bank more as they get more cash flow. Don’t be ashamed to tell them you just got a pay cut and as such don’t have a choice but to do this.

Coronation ads

Even if you never had a pay cut but just have financial constraints, make them understand what your predicaments are and how a restructuring of the loan is the best option. They may come with their own proposals for a way out which may or may not be better than yours. Whatever the case just remember than your guiding principle is the cash available to you after you debt service.

Step 6: Forward an official letter to the bank:

BAD LOAN NEGOTIATIONAfter you must have concluded negotiations with your account officers, you should now write them officially requesting for a restructuring of the loan. The tone of the letter can look like this. The response time for banks typically varies depending on the efficiency of their operations. Based on that, it is often advisable that you follow up from time to time especially via emails. Emails are good record keepers as such is mostly preferred as a communication took.

[Read Also: How to keep your small scale business running]

Step 7: Post Restructuring

BAD LOAN NEGOTIATIONOnce your offer has been approved, the bank will give you a restructured facility with terms and conditions. Make all efforts to read the fine prints as banks notoriously embed details in it. Ensure you look out for the following

  1. Tenor – Make sure it’s the number of years/months you agreed with the bank.
  2. Interest Rate – Always check interest rates especially if they are tied to benchmarks. Sometimes they tell you it’s “subject to market conditions” or “MPR plus 12%”. Whatever the case, they are simply telling you interest rates can go up (hardly down). Make sure your offer rates are competitive. To make sure, consult your accountant or friends in other banks.
  3. Fees – Fees are often over looked when it comes to loans, whereas they are also a cost. When you are restructuring, the banks typically will charge you a “restructuring fee”, “management fee” and facility fee”. Restructuring Fee is a one off payment and can range from 0.25% to 1% of the loan. Always negotiate for 0.25% or even zero. It is possible if you make them understand you can’t afford it. Management Fees are paid every year and is a flat percentage of the outstanding principal. They can tell you it is 1% of the Loan or 0.5%. Facility Fee is also similar to the restructuring fee. However, this is mostly charged for a new loan. Whatever the case strive for a total Fee that will NOT cost you more than 0.5% per annum.
  4. Security – Make sure the security (collateral) they are asking for is what you agreed with them during negotiations.
  5. Caveats – There are usually loads of clauses and caveats that are found under “Other Conditions”. It can be burdensome to read but since its your but on the line, I suggest you read them. Particularly the clause that refers to early repayment. Some banks charge you if you decide to repay all or part of the loan before it is due. Make sure this clause says “you will not be charged for early repayment of all or part of the facility”. Who know, you might land a lucrative job and decide to pay off the loan.

Step 8: Endorse the new offer

BAD LOAN NEGOTIATIONSign a copy of the offer and keep an original as well (with the signature of the representatives of the bank).

Jaiz bank ads

Step 9: Think about another job

BAD LOAN NEGOTIATION Start to look for another job or find a way to improve your financial situation. Even with the relatively affordable cash payment Wale has to make, he still has less disposable income available to him. As such a debt burden is something he needs to get out of his life. That will only be put to bed by an improved stream of cash flow.

Stanbic IBTC

[Read Also: Difference Between Interim Dividend and Final Dividend]

Conclusion – Whilst these are basic steps to guide you, it is advisable that you consult Accountants, Lawyers when negotiating with a bank. Never be afraid to negotiate your way out of the pains of debt. Be smart and think rich.

Nairametrics is Nigeria's top business news and financial analysis website. We focus on providing resources that help small businesses and retail investors make better investing decisions. Nairametrics is updated daily by a team of professionals. Post updated as "Nairametrics" are published by our Editorial Board.



  1. Sabrina

    April 23, 2012 at 2:12 am

    This comment has been removed by the author.

  2. Anonymous

    June 21, 2019 at 10:02 am

    This is surely an improvement memo, but it will really go along way, thou I don’t have any debt but am well informed now.

  3. Anonymous

    August 28, 2020 at 2:01 am

    Well said! Nice write up!

Leave a Reply

Your email address will not be published.

This site uses Akismet to reduce spam. Learn how your comment data is processed.

Personal Finance

Must-do things after you finally become debt-free

Now you are finally debt-free, these next steps will help you make sure you never fall back into debt again.



So now that you are debt-free what next? Remember that clearing your debt is just one part of the exercise; staying out of debt is vital to ensure that you don’t end up in the same financial injury. Living debt-free is not rocket science. All it requires is the consciousness that healthy finance is essential for you to live a happy life.

You may want to check out our previous articles 9 Brilliant ideas to pay off debt fast in 2021 and How to get out of debt: A step-by-step guide where we discussed extensively how to find your way out of debt.

Outlined below are some things to help you live debt-free; have a good read.

Make a list of your income and expenses

The first thing to do to ensure that you don’t fall into debt is to plan. Planning is such a vital step to success for anything we want to do in life. Indeed, if you don’t want to fail, you cannot neglect to plan. This doesn’t have to be complicated in any way. It’s as simple as you putting down words and figures. The first step in this process is making a list. You need to see on paper, what your finance looks like. It may not seem like such an important thing to do, but it is necessary. Making this list, all you have to do is write out what you earn on one side. If you have different streams of income, put it all on paper. Then, write out your expenses on paper, everything you know you spend money on monthly. Depending on when you receive your incomes; you can make it weekly or bi-weekly. Just compare how much is coming in against how much is going out.

GTBank 728 x 90

Create a budget plan

The next step in the planning process is to create a budget. Based on your analysis from the step above, you should assign every dollar/naira you earn a task. You cannot afford to be passive with your money, give them work to do. They are available to make life easier for you right, but if you don’t tell them what to do, they cannot help you achieve that. You have to understand also; depending on what the ratio of your income to expenses is, you might need to make certain adjustments. In fact, if you want to stay out of debt, you NEED to make those adjustments. This step is not as difficult as you may think, if you do not know how to go about this process of creating a budget, you can use a budgeting app to make it easier for you. There are so many choices out there so you must choose wisely because your financial needs may be different from your neighbour’s.

Be intentional about your money

Coronation ads

This tip can be summarised into the first two steps already outlined. But it is such an essential factor that deserves special attention. Intentional merely is being deliberate in your actions. Therefore, being intentional about your money requires that you don’t leave anything to chance. Conscious money habits will ensure better financial health and keep you from running into debt. So, as basic as the first two steps might seem to you, you really cannot neglect them.

Do not make purchases based on emotions

It is very easy to spend to make ourselves feel better. The painful truth is that the things you buy won’t make you feel better. They cannot take away that feeling, because when the initial gratification has waned, you would still be left with that emptiness you were feeling in the first place.

Unsubscribe from sales emails

Everybody likes to get the first updates for those juicy deals and grab them as they come. If you have not planned for it, please don’t do it. You have to unsubscribe from emails that make you spend more money. Remember that the person sending those emails wants to make money. You do not need to place that instant ordering; turn it off.

Jaiz bank ads

Maintain a good credit score

Stanbic IBTC

Remember when we talked about how to stay out of debt; one of the tips offered was to negotiate lower interest rates. Having a good credit score qualifies you for lower interest rates. More than that; having a good credit score grants you more negotiating power, better insurance deposits, easier approval for loan requests, it also affords you higher credit limits. Overall, having a good credit score places you on better standing than having a bad one.

Do not tie up your money in illiquid investments

As necessary as an investment is, you must engage in those with high liquidity as opposed to illiquid investments.

Earn more money

There is no human on this planet that this idea will not be appealing to. We always want to have more money, no matter how much we already have; it’s in our nature. The simple ways to earn more money is to get a side hustle, become a freelancer or contractor; use your skills to make money. With unlimited access to technology, the world of work offers more opportunity than ever for anyone to turn their skills into pay.

Staying out of debt can be summed into these few words; “Live within your means”. The way to ensure that you do that is by planning. Be intentional about your money. Life can happen at any time but even when it does, with a proper plan already in place, you will be better equipped to handle unforeseen circumstances than when you don’t even know where your money is coming from.

Continue Reading

Personal Finance

How to get out of debt: A step-by-step guide

Follow these few simple practices and you may well be on your way to living a debt-free life.



The crowding out effects of rising States' debt: Why Nigerians should worry, How to Get Out Of Debt: A Step-by-Step Guide

Having to run or hide from someone just because you owe them some money is not a very fun exercise. But what if you didn’t have to do it, what if you lived debt free? Hold your gasps; it’s not so shocking. It is very attainable, and if you can follow the few simple practices we’re about to examine, you can be well on your way to FREEDOM.

Here, we’ve outlined necessary steps to help you live debt-free;

READ: How to make more money solving problems

Gather your data: These include records and information that contain your bills and expenses, income and source(s) of income, credit score etc. the goal here is to get you acquainted with yourself. You have to know yourself well enough to understand your spending pattern and identify critical areas to adjust or habits to do away with.

Understand your debt: Make a list of all your debts, all that you currently owe, and how much interest rates are charged on them. Remember to include the minimum required payment for each debt. This would help you understand the type of debt(s) you owe. Understanding your debt will help you know how it happened and give you a clearer perspective on how to clear it. If you have more than one type of debt, it can be challenging to keep track, and you may find yourself always paying money and not even knowing if you are a step closer to clearing your debts. But you cannot begin to pay off your debt until you understand what the figures in your records represent.

GTBank 728 x 90

READ: Football: Manchester United net debt rises by 133% to £474.1million

Create a budget and debt pay-off plan: Creating a budget should have come as a first step. However, that would be more effective in the situation that debt doesn’t exist, because one of the reasons for budgeting is to make sure that you DON’T fall into debt. Having gathered your data and coming to terms with what the records are; the next thing to do is to create a plan. There are different tools you can utilize to help you. A simple keyword search would give you an idea of what to do. The budget plan doesn’t have to be complicated, create a list that you would be able to understand and stick to the program.

(READ MORE: How declining interest rates, others drive a shift in Nigeria’s investment sector)

Coronation ads

Lower your interest rates: The reason why people fall into debt and find it challenging to pay is due to the interest rate charged on their actual amount borrowed. You see; because you are required to pay interest rates on that money, it drags out the length of time you could payback. Negotiate your interest rates lower. Even when you may have already borrowed and started paying it off, if you find it challenging to complete payment, you should consider asking for lower interest rates. Depending on who your lender is, and how persuasive you are, you may find yourself having less to worry about.

READ: Afreximbank posts $217m net income in 9M 2020

Pay more than you have to pay: Another reason you could remain indebted to someone is when you stick to just paying the monthly required amount. Because of the interest charged on most loans, you only concentrate on paying that specific amount for that particular month. That keeps you in debt because instead of bringing you closer to clearing your debt, you are only dragging it out. Regardless of the interest rate, if you can pay more than the expected amount, you should go on to do so. It is something that you can discuss with your lender. It serves both of you because the faster you clear your debt, the quicker he gets his money back.

Earn More Money: To settle your debt, you have to go out of your way to ensure that your income supersedes your expenses. One way you could earn more money is by starting a ‘side hustle’ or taking a part-time job. In this modern age, there are more opportunities than ever, for anyone to diversify their streams of income. And most of these gigs are conveniently remote; you can run them from the comfort of your home. Of course, any human would be elated at the prospect of earning money, and when you are in debt, you just have to go out of your way to do everything possible to clear.

Curb Your Excesses: If you are in debt and you are finding it difficult to clear, evaluating your lifestyle habits could help put things into perspective. You have to be honest with yourself. If you want to pay off your debt faster, you’ll need to cut your expenses as much as possible. One tool you can create and use is a bare-bones budget. This is a strategy you can use to make your expenses as low as it can go and live a minimalist lifestyle. Live only on bare necessities and do away with frugality.

Jaiz bank ads

No matter the type of debt, you can always clear it. Never believe that it is impossible. Always remember to have a plan. You really cannot afford to leave your life to chance. Be intentional about every aspect of your life, especially with your finances.

Stanbic IBTC

Continue Reading

Personal Finance

9 Brilliant ideas to pay off debt fast in 2021

While debt repayment can be excruciating, this article will give you nine (9) brilliant ideas you can use to pay them off.



How to avoid debt despite economic challenges

The coronavirus pandemic has left the world’s economy in shambles. Banks, private and government-owned, have recorded an increase in loan requests. Loads of employees have become unemployed. Entrepreneurs who took loans to support their businesses were affected by the lockdown measures. Even global conglomerates took a hit, and stock prices dropped.

Debt does more than just reducing your spending power. Constantly defaulting on your debt repayment agreement, could buy you time in jail. Debts could give you anxiety-related health conditions. Regardless of the amount you possess, debt could ruin any financial statement without proper management.

In the post-pandemic period, there had been more people in debt, compared to the previous year. Don’t let the anxiety stall your debt repayment process.

While debt repayment can be excruciating, this article will give you nine (9) brilliant ideas you can use to pay them off.

  • Stop payment using your bank cards
    One of the villains of debt repayment in this technological era is the e-banking system. Mobile transactions, Debit and Credit Cards, they cause more financial crises, especially for people with poor management skills. When trying to fasten loan repayment, try to go traditional with your banking. It helps to avoid unnecessary spending.
    (READ MORE: Growing concern for Nigeria’s ballooning debt profile)
  • Pay off the smaller debts first
    Paying the smaller debts increases your chances of striking items off your list and also motivates you to continue. This method is commonly referred to as the snowball method, which involves making a list of your debts and their financial values. This list helps you keep track of your debts and also helps to determine their worth. Thus, you would be more inclined and motivated to pay off each debt eventually.
  • Pay off loans whose interest keeps accumulating
    In cases where there are loans with high-interest rates which aren’t the smallest loans, the snowball method might put you in more debt. The method, commonly referred to as the avalanche method, helps you save more off interest rates. Create a list of your debts with their interest rates then commence either a monthly, weekly or daily payment method on the one with the highest interest rates. Do this consistently till you have cleared all your debts.
  • Budget your resources
    The key to financial independence oftentimes is budgeting. Budgeting helps you manage your resources according to your needs. In periods of economic depression or debts, you should work to eliminate insignificant expenses. Your budget should begin with a scale of preference, your needs in their order of significance. Then draw a method to allocate money to only the needs that are very important within that period.
  • Stick to your budget
    Making a budget and failing to stay in-line with your plan, is like buying bricks and hoping that the wind does the construction. A budget is meant to be a guide. It is a means to an end, which is eventual financial freedom. Your intentions wouldn’t come out to make your budget work if you keep on buying burgers and shoes at every window stop.
    (READ MORE: The economy may end up weaker if inflation rate is not controlled – CBN report)
    Loans/Debts have timelines, and the fastest way to clear your debts is to beat the timeline and avoid the interests. Keeping to your budget ensures that you have extra money to avoid paying interest.
  • Find an extra income source
    Extra money at this time would help facilitate your debt repayment process. An extra hour or two could be the defining factor in keeping to the loan timeline. Yes, there are fewer jobs at the moment, especially with the state of the world’s economy. Freelancing is a viable option in this case. You get to work at your convenience and make extra money too. Fiverr, UpWork and LinkedIn, are reputable and safe platforms for finding freelancing jobs at low cost.
  • Pay timely and occasionally
    The mistake most people make is trying to accumulate the total money before paying. This is careless, as you are prone to spend the money before the given date. With every fresh income earned, pay your debt(s) gradually, it helps ease anxiety. Timely payment not only ensures that you clear your debt(s) on time, they also add to your credit score and ensure that you can borrow again if need be.
  • Never borrow to pay debts
    A debt is a debt, fresh or old. Never make the error of taking loans to pay off loans; it only leaves you in a fresher hole.
    (READ MORE: Here are 7 ways to plan for the unexpected in your small business)
  • Change your spending habits
    Spending on unnecessary items or unbeneficial investments while in debt(s), leaves you at the risk of widening your debt gap. It would help if you modified your spending habit to suit your current situation. If you must make it through, every extra resource is valuable.
    Aside from poor management, debt is one of the significant causes of bankruptcy in the financial world. If you must maintain your financial independence and wealth, after repaying your debts, you must stick to all the habits and skill you acquired during your loan repayment period.
    Avoid spending on insignificant investments, save every extra money you acquire till you find a profitable venture to invest in.

GTBank 728 x 90
Continue Reading