A loan app offers you ₦50,000 and wants ₦60,000 back in 30 days. Ten thousand naira. That sounds like a small price for a month of breathing room.
It is a 20% rate for one month. If you keep rolling the loan over, that works out to roughly 790% a year. The lender never has to say that number out loud, and most borrowers don’t work it out until the debt is already bigger than the salary meant to clear it.
The same loan can be described three ways
Per month, per year, or as a total amount repaid. All three can describe the exact same loan, and lenders pick whichever sounds smallest. A rate quoted per month looks tiny next to a yearly one. A flat rate looks smaller than the real one, and I’ll show you why in a minute.
The only version you can’t be fooled by is the last: how many naira leave your account in total, against how many naira you actually received. Start there, every time.
Monthly rates are bigger than they look
Multiply a monthly rate by 12 for the quick version. 5% a month is 60% a year. 10% a month is 120%. Nigerian loan apps have been reported charging anywhere from a couple of percent to 30% a month, which is where the triple-digit yearly figures come from.
And that quick sum is the kind one. Roll the loan over each month and you pay interest on the interest too. Our ₦50,000 loan at 20% a month is 240% a year by simple multiplication, and about 790% once it compounds.
Flat rate versus reducing balance
This one catches people who think they’re being careful because they went to a bank or a cooperative.
Say you borrow ₦300,000 over 12 months at ‘3% a month, flat’. Flat means the 3% is charged on the full ₦300,000 every single month, even though you’re paying the loan down as you go. That is ₦9,000 a month in interest, ₦108,000 over the year. You repay ₦408,000, at ₦34,000 a month.
Now take a reducing balance loan at the same 3% a month. Here the interest is charged only on what you still owe, so it shrinks as you pay. Your monthly payment is about ₦30,100 and the total interest is roughly ₦61,700.
Same 3%. One costs you about ₦46,000 more. Worked backwards, that flat 3% a month behaves like 5.1% a month on the balance you really owe, which is about 61% a year, or 81% if you let it compound. The advert said 36%.
Fees hide in what you receive
Some lenders take a processing fee or insurance out before the money reaches you. You borrow ₦100,000, a 10% fee comes off up front, and ₦90,000 lands in your account. If you owe ₦115,000 after 30 days, you paid ₦25,000 to use ₦90,000 for a month. That is about 28%, not the 15% on the offer page.
Four questions before you sign
- What is the total I will repay, in naira?
- Is the rate per month or per year, and is it flat or reducing balance?
- What comes off before the money reaches me?
- What does one late day cost?
Since July 2025, digital lenders in Nigeria are supposed to show you the interest rate, repayment period, fees and schedule before you accept, under the FCCPC’s consumer lending regulations. They are also barred from going through your contacts and photos. The FCCPC has said it will monitor rates to keep them from being exploitative, but a lender showing you a number doesn’t make it a fair number. Check that the lender is on the FCCPC’s registered list before you borrow.
My rule of thumb
If a lender won’t tell you the total repayment in naira, don’t take the loan. And if a loan costs you more per month than a Treasury Bill pays in a whole year, it isn’t something to carry around while you invest. Clear it first. The maths behind that is in Should You Pay Off Debt or Start Investing?
Already carrying one of these? The repayment plan in How to Get Out of Debt in Nigeria is where to go next. If you’re deciding what to do with a lump sum while in debt, this walkthrough with ₦500,000 covers it, and Should You Take a Loan to Buy Dangote Refinery IPO Shares? shows the borrowing question in a very live example.
Sources: FCCPC Digital, Electronic, Online or Non-Traditional Consumer Lending Regulations, 2025 (effective July 21, 2025), as reported by BusinessDay and Nairametrics; loan app rate ranges as reported by Nairametrics. The worked examples are illustrations, not offers from any lender, so check your own loan agreement. This is financial education, not personal advice.
