Despite High Interest Rates, Consumers Say Loan Apps Remain Lifeline

Despite punishing interest rates, Nigerian consumers say digital loan apps remain a lifeline, giving households and small businesses fast cash when incomes cannot cover urgent expenses, even as analysts warn that the borrowing is deepening debt.

Borrowers who spoke with LEADERSHIP Weekend, said they turn to the platforms out of necessity, not choice, to restock shops, cover emergencies at home and bridge the gap between income and rising living costs. Many said they keep borrowing even after complaining of weekly charges as high as 45 per cent, overdue penalties of five to 10 per cent daily and, in some cases, recovery methods that involve contacting their friends and family.

Analysts, however, warn that what begins as an emergency borrowing is increasingly becoming a cycle of indebtedness, as some borrowers take fresh loans to repay old ones.

As salaries, business revenues and daily earnings struggle to keep pace with rising expenses, digital lending platforms have emerged as a quick source of cash for Nigerians facing urgent financial obligations, but the high cost of short-term credit is leaving some borrowers with larger repayment burdens.

For some borrowers, the problem extends beyond the cost of credit to the methods employed by some lenders to recover overdue loans.

A frequent borrower, Adams Awe, said some digital lenders charged high interest rates and imposed additional pressure when borrowers defaulted.

“Some of them charge weekly, with interest rates as high as 45 per cent. It is only good when you are in dire need of it as an emergency to come to your rescue,” he said.

Awe said the experience could become unpleasant when repayment was delayed, alleging that some lenders resorted to contacting friends and family members of borrowers.

“The experience is not palatable at all. If you default, they can send messages to your friends and family. Except the conventional ones who do not engage in that. While some of them are not regulated, so they do anyhow to borrowers,” he said.

Another borrower, Adedoyin Teledalashe, said interest and repayment charges varied among digital lenders, depending largely on the duration of the loan.

He alleged that some lenders also imposed additional daily charges when borrowers failed to repay on time.

“The interest rates on the apps differ. Some charge 30 per cent of the loan amount, some 20 per cent or 10 per cent. It all depends on the days the loan takes to pay back. The longer the days or months, the higher the percentage,” he said.

Teledalashe said the additional charges could substantially increase the amount eventually repaid by borrowers.

“And what makes it difficult is that they add outrageous daily rates or extra charges when your loan is overdue, something like five to 10 per cent daily,” he added.

For small businesses, however, digital credit remains an important source of emergency working capital, particularly for operators who may not have easy access to conventional bank financing.

A small-business operator, Daniel, said digital loans had helped him restock his business during periods of temporary cash shortages, but repayment became difficult whenever expected sales failed to materialise.

“You can take a small loan thinking you will repay it in a month, and suddenly you are looking for another source of money to meet the repayment,” he said.

Similarly, a beauty and makeup kits trader, Blessing Peters, said many borrowers were taking digital loans because of urgent financial obligations rather than a desire to live beyond their means.

“Sometimes there is simply no money to solve an urgent problem like restocking goods or even at the home front when there is a financial need,” she said.

Peters, however, said high interest rates and additional repayment charges could create another financial burden after the initial problem had been addressed.

Meanwhile, a private security officer, Emeka Johnson, said his experience with some digital lenders had improved, with some operators now relying more on repayment reminders than threats.

“I have noticed that some lenders are more professional now and send reminders instead of immediately threatening customers. But I still think people need to be very careful about giving loan apps access to their personal information,” he said.

For a generator spare-parts dealer in the Ojodu-Berger area of Lagos, Tochukwu, transparency remains a major concern.

“What matters to me is transparency. Before taking a loan, I want to know exactly how much I am getting, how much I will repay and when. If those things are not clear, I would rather not take the loan,” he said.

Financial analysts said the growing dependence on loan apps was not necessarily an indication of increased access to financial opportunities, but a reflection of deepening cash-flow pressures across households and small businesses.

They warned that repeated borrowing to meet basic expenses or repay previous loans could worsen household financial vulnerability, particularly where interest rates and overdue charges significantly increase the amount ultimately repaid.

Investment analyst, Tosin Ige, said many Nigerians were relying on borrowing because their incomes had failed to keep pace with rising expenses.

“Regardless of whether the interest rate environment is high or low, most Nigerians depend on borrowing to bridge the gap between their rigid income and expenses that have gone up due to the high cost of living,” he said.

Ige noted that while expenses could rise significantly, income growth had remained comparatively weak, leaving many households with limited options when faced with urgent financial obligations.

He said digital lenders had gained popularity because they provided quick, collateral-free credit, unlike conventional banks which generally applied stricter lending requirements to manage credit risks.

“Most Nigerians are attracted to these loans because of the speed and convenience of accessing them without excessive conditions,” he said.

However, Ige warned that the relatively high cost of short-term digital credit could push borrowers into a cycle of indebtedness, particularly when loans were repeatedly taken to repay existing obligations.

“The problem is not that these loan apps exist; the problem is that their monthly lending rate runs into 15 to 20 per cent, while annualised rates can run into over 100 per cent,” he said.

According to him, some borrowers were already caught in a debt trap because they had begun taking fresh loans to service previous debts, adding that the solution required policies capable of improving domestic productivity and expanding income-generating opportunities.

Similarly, financial technology analyst, Akeju Abiodun, said demand for digital loans had not disappeared because the underlying need for short-term liquidity remained strong.

He, however, said borrowers were becoming more cautious about the platforms they used, while lenders were increasingly selective about the customers they were willing to finance.

“The demand has not disappeared because the underlying need for short-term liquidity remains. What has changed is that borrowers are becoming more cautious about the platforms they use, while lenders are becoming more selective about the customers they are willing to finance,” Abiodun said.

He explained that for many households and small businesses, borrowing was primarily about bridging temporary cash-flow gaps rather than financing unnecessary consumption.

“People do not necessarily borrow because they like borrowing. They borrow because their income and expenditure cycles do not match. When salaries, business revenue or daily income are insufficient to cover immediate obligations, digital credit fills the gap,” he said.

Abiodun, however, warned that the convenience of obtaining loans could become dangerous when borrowers started taking new loans to repay existing ones.

“The real danger begins when short-term credit becomes a permanent source of household income. At that point, the borrower is no longer solving a temporary liquidity problem; he is managing a structural income deficit through debt,” he added.

Financial services consultant, Ibrahim Audu, said the digital lending market had become more regulated, although consumer experiences remained mixed.

He said legitimate lenders were increasingly expected to operate with greater transparency, while regulators were tightening oversight of operators accused of violating consumer rights.

“The industry is being forced to recognise that access to a customer’s phone contacts or personal information does not give a lender unlimited authority over that customer. Credit recovery has to remain within the boundaries of consumer protection and privacy,” Audu said.

He added that registered lenders had stronger incentives to document lending terms, protect customer information and adopt formal recovery procedures because regulatory sanctions and reputational damage could affect their operations.

The growing complaints have also drawn increased attention from the Federal Competition and Consumer Protection Commission (FCCPC), which has intensified oversight of the digital lending industry over complaints bordering on unfair lending practices, harassment, privacy violations and improper debt recovery.

The Commission’s Digital, Electronic, Online and Non-Traditional Consumer Lending Regulations provide a framework for digital lenders and seek to promote transparency, accountability and consumer protection in the sector.

FCCPC executive vice chairman, Tunji Bello, has maintained that the era of impunity in Nigeria’s digital lending space is over, as the Commission continues to enforce compliance with its regulatory requirements.

Under the regulatory framework, digital lenders are expected to meet registration and compliance requirements, while operators that violate consumer protection rules may face sanctions.

Legal consultant, Taiwo Olatunji, said borrowers also had a responsibility to document their experiences when seeking regulatory intervention.

“A customer should preserve evidence of the loan agreement, repayment history, messages, calls, charges and any alleged harassment before escalating the matter,” Olatunji said.

She said complaints against digital lenders could involve unfair lending terms, abusive recovery practices, privacy violations and misleading representations.

According to her, consumers should first seek resolution from the lender and, where the matter remains unresolved, approach the FCCPC with details of the company involved, the amount in dispute, the relief sought and supporting evidence.

For financial institutions under the supervision of the Central Bank of Nigeria (CBN), she said customers should similarly lodge complaints with the institution before escalating unresolved cases to the CBN’s Consumer Protection Department.

Consequently, as regulatory scrutiny increases, the central question is no longer whether Nigerians need digital credit, but whether lenders can provide such credit without exploiting financially vulnerable consumers.

“The question is no longer simply whether people need loans; they clearly do. But the bigger question is whether the industry can provide that credit without turning financial vulnerability into a source of exploitation,” Olatunji said.

She added that sustainable digital lending would require responsible borrowers, responsible lenders and regulators that consistently enforce the rules.

For now, digital loans continue to provide a financial bridge for salary earners, traders and small businesses facing immediate cash shortages. But the growing reliance on short-term digital credit also exposes a deeper economic problem: when incomes cannot keep pace with the cost of food, transport, housing, business inputs and other essential obligations, borrowing increasingly becomes a substitute for income.

Unless household incomes and productive opportunities expand, analysts warned that digital credit could continue to provide immediate relief while leaving financially vulnerable Nigerians with a heavier debt burden after the emergency has passed.