What this loan really costs
A lender says “5% a month”. That sounds like 60% a year. It is usually far more. This works out the rate you are actually paying.
Your offer
Why the real rate is higher than the one you were quoted
Two things push it up, and most borrowers only find out afterwards.
1. Flat rate charges you for money you have already paid back
On a flat-rate loan the interest is worked out on the original amount, every single month. In the last month you might owe the lender almost nothing, but you are still charged 5% of the full amount you started with. On a reducing-balance loan the interest applies only to what is still outstanding, which is what most people assume is happening.
The same quoted rate costs close to twice as much on flat as on reducing. Switch the dropdown above between the two and watch the annual rate move without changing anything else.
2. A fee taken off the top is a rate rise in disguise
If you borrow ₦100,000 and ₦5,000 is deducted as a processing fee, ₦95,000 reaches you. But you repay as though you received the full ₦100,000. You are paying interest on money you never had. The calculator above works the true rate against what actually landed in your account, which is the only honest way to compare two offers.
How to use this before you sign
- Ask for the total repayable, in naira. Not the rate. The total. A lender who will not put that in writing is telling you something.
- Ask which method the interest uses. Flat or reducing. It is a fair question and it roughly doubles the answer.
- Ask what is deducted before disbursement. Then check what actually arrives.
- Compare offers on the annual rate, not the monthly one. Small monthly numbers hide very large annual ones.
A note on what is normal. Short-term lending in Nigeria is expensive, and a high annual rate on a two-week loan is not automatically a scam. What matters is that the cost is disclosed in writing before you commit, that the lender is licensed, and that you can repay without borrowing again. A rate you were never told is the problem, not a rate that is high.
Next: check whether you can afford the repayment, or read interest rates explained.