Nigeria’s deepening cost-of-living crisis is driving more households towards expensive digital loans, with some lenders charging interest rates that could exceed 50 per cent monthly when compounded.
As food, rent, transportation and healthcare costs continue to strain household budgets, millions of Nigerians increasingly rely on short-term borrowing to meet urgent financial needs. However, the high cost of these loans is raising fears of a growing debt trap.
Digital loan disbursements reached $1.63 billion in 2025, reflecting the rapid expansion of consumer credit across the country. But the growth has come with higher borrowing costs as digital lenders factor increasing loan defaults into their pricing.
Unlike the early days of digital lending, when platforms competed with relatively affordable credit offers, some lenders now charge nearly 20 per cent interest on loans with a repayment period of just one month.
For borrowers with poor credit records, the rates can climb even higher, with some approaching 25 per cent monthly.
Investigations by The Guardian found that OPay’s lending platform, EaseMoni, charges low-risk borrowers a monthly interest rate of 18.9 per cent.
At that rate, monthly compounding produces an effective annual interest rate of approximately 698 per cent, excluding additional fees and charges.
A new PalmPay customer also told the newspaper that the platform offered him a daily interest rate of 1.5 per cent. If compounded daily over 30 days, the rate would produce an effective monthly interest rate of approximately 56.3 per cent.
Another digital lending user reported receiving an offer with a monthly interest rate of 19.2 per cent, despite never previously borrowing through the application.
Digital Loan Rates and the Growing Debt Burden
The cost of borrowing can become even more severe when customers miss repayment deadlines.
Some digital lenders calculate default penalties daily, applying additional charges to outstanding principal and accumulated interest. Unless lenders formally restructure the debt, borrowers may watch their repayment obligations increase rapidly.
Early repayment also offers limited relief on some platforms. Unlike conventional lending arrangements that may adjust interest charges when customers settle loans ahead of schedule, some digital lenders require borrowers to pay the full principal and interest for the agreed loan period.
This means customers may still pay the entire borrowing cost even when they repay a loan shortly after receiving the money.
The growing lending business has also changed the operations of digital financial platforms, particularly OPay, which has expanded beyond payment services into consumer and business credit.
The company’s quarterly borrowers increased from 3.5 million in the first half of 2025 to 6.7 million during the corresponding period of 2026.
Its latest filing with the United States Securities and Exchange Commission showed that OPay disbursed $927.63 million in new loans during the first half of 2026. This represented a 204 per cent increase from the $305.12 million recorded in the same period of 2025.
Loan income also reached $236.12 million, significantly exceeding the $130.55 million generated from payment-related services.
The company offers personal credit facilities alongside loans for micro, small and medium-sized businesses.
OPay estimated that its $938.3 million in new loans during 2025 represented 57.4 per cent of Nigeria’s total digital lending disbursements of $1.634 billion.
Other financial technology companies are also expanding their credit operations.
Moniepoint Microfinance Bank disclosed that it disbursed more than N1 trillion in loans to small businesses in 2025. Its Chief Executive Officer, Tosin Eniolorunda, identified credit built around payment services as a major part of the bank’s next growth phase.
FairMoney Microfinance Bank also reported lending more than N150 billion during the same year.
More Nigerians Borrow to Meet Daily Expenses
The expansion of digital credit has raised questions about whether Nigerians are borrowing primarily to grow businesses or simply to survive rising living costs.
Findings from the 2026 Access to Financial Services in Nigeria survey, conducted by Enhancing Financial Innovation and Access (EFInA) and weighted by the National Bureau of Statistics, highlight a significant shift towards consumption-related borrowing.
According to the survey, 40.8 per cent of formal borrowers took loans mainly to cover personal expenses or consumption in 2026. The figure increased from 31.7 per cent in 2023.
Meanwhile, the proportion of borrowers using credit for productive business activities declined from 40.2 per cent to 34.3 per cent.
Formal financial inclusion improved from 64 per cent in 2023 to 73 per cent in 2026. Formal credit usage also increased from six per cent to approximately 10 per cent, representing 11.9 million Nigerians.
Among people working in the informal sector, access to formal credit increased from five per cent to 15 per cent.
However, wider access has not necessarily improved borrowers’ financial conditions.
The survey covered 18,679 adults between April and June 2026. It found that 45.8 per cent of formal-credit users experienced some level of repayment stress or serious difficulties meeting their obligations.
Only 30.7 per cent of adults with formal financial access qualified as financially healthy.
The findings suggest that having access to financial services does not automatically translate into financial security.
Credit Direct’s 2025 credit landscape report also identified rent, medical expenses and school fees among the major reasons Nigerians seek loans.
These findings point to the growing use of borrowing to finance ordinary household responsibilities rather than investments capable of generating additional income.
Rising Living Costs Push Households Towards Expensive Credit
Nigeria’s household financial pressures remain significant despite recent improvements in headline inflation.
A cost-of-living analysis published by The Guardian on September 21, 2026, estimated that a single urban worker needed approximately N372,300 monthly to maintain a modest standard of living.
This amount remains far above the national minimum wage of N70,000.
The analysis also found that surveyed workers spent an average of N4,500 daily on transportation. Over 22 working days, that translates into approximately N99,000 monthly.
A basic healthy diet was estimated to cost N47,670 monthly.
Even a housing allocation of N125,000 monthly would not eliminate the challenge of paying annual rent in advance.
These expenses explain why short-term digital loans appeal to financially stretched households. Borrowing can provide immediate money for food, transportation, medical treatment or other urgent responsibilities.
However, repayment creates another financial burden for households already struggling to balance their income against everyday expenses.
According to the National Bureau of Statistics, headline inflation declined to 14.63 per cent in September 2026 from 15.39 per cent in August.
Food inflation, however, remained elevated at 19.59 per cent. Lagos recorded the highest state food inflation rate at 34.4 per cent.
The International Monetary Fund’s 2026 Article IV report estimated that 63 per cent of Nigerians lived below the national poverty line. It also estimated that 27 million people experienced food insecurity during the latter part of 2025.
Analysts Differ on the Causes of Digital Lending Growth
Vice-President of Highcap Securities, David Adonri, said Nigeria’s expanding digital lending market should be viewed against the country’s longstanding shortage of accessible consumer credit.
He explained that President Bola Tinubu’s administration had promised to improve access to affordable consumer financing to stimulate demand and enable Nigerians to purchase goods without saving for several years.
According to him, fintech companies have used their extensive retail customer networks to enter the lending market and provide services that traditional financial institutions have struggled to offer.
However, Adonri cautioned against linking the entire expansion of digital credit to the cost-of-living crisis.
He argued that the sector remained relatively young and could continue growing as more Nigerians discovered the available lending services.
He described the growth as a possible natural development of the digital finance industry, although he acknowledged that the loans had become an important source of support for consumers facing financial difficulties.
Adonri also noted that some Nigerians were cutting consumption because of rising expenses, while others depended on borrowing and support from extended family members.
He warned that researchers needed to examine the figures more closely before treating increased consumer lending as a direct indicator of poverty.
Head of Research and Strategy at GTI Group, Abiodun Ogunniyi, said OPay’s figures revealed more than an increase in the number of borrowers.
He pointed out that loan disbursements increased by 204 per cent, while quarterly borrowers grew by approximately 91 per cent.
The difference suggests that the average amount disbursed per borrower also increased.
Ogunniyi added that investors would increasingly assess OPay as a major creditor rather than simply a payment services provider, particularly as lending income continued to rise alongside credit-loss expenses.
Experts Demand Stronger Regulation of Digital Loan Rates
The Chairman of the Alliance for Economic Research and Ethics, Dele Oye, has urged the Central Bank of Nigeria and other relevant authorities to intervene over digital lenders charging annual interest rates above 300 per cent.
In a statement titled The Mathematics of Marginalisation: Decoding Nigeria’s Poverty Premium, Oye argued that low-income households often pay more for essential goods and financial services because they lack access to affordable alternatives.
He explained that wealthier consumers could purchase goods in bulk and benefit from lower unit prices. Poorer households, however, often buy smaller quantities at higher costs because of limited financial resources.
He said the same disadvantage affected access to credit, forcing financially excluded Nigerians to depend on digital lending applications with expensive interest rates and additional charges.
Oye cited cases where borrowers received N65,000 but had to repay N93,000 within seven days.
He added that default penalties could push the repayment obligation to as much as N158,000.
According to him, such lending practices could create a cycle in which people with the weakest financial capacity pay the highest prices for access to money.
He called for stronger consumer protection and consideration of interest-rate limits to prevent exploitative lending practices.
OPay’s SEC filing acknowledged that interest rates on some of its Nigerian credit products exceeded those commonly charged in other markets.
The company maintained that the rates complied with Nigerian laws and broadly reflected the prevailing charges among competitors.
However, it warned that regulatory restrictions requiring lower interest rates, stronger borrower protections or withdrawal from certain lending segments could affect its revenue and future growth.
Rising Loan Defaults Also Threaten Digital Lenders
The risks associated with digital lending extend beyond borrowers to the companies providing the credit.
OPay’s latest financial figures show a sharp increase in provisions for expected credit losses, indicating that the company faces growing risks from loans that may not be fully recovered.
Its provisions for expected credit losses increased by 210.3 per cent to $118.36 million in the first half of 2026.
The amount represented 25.3 per cent of its revenue, compared with 19.3 per cent during the corresponding period of the previous year.
The company also wrote off $113.15 million in loans during the period. This represented a 520.5 per cent increase from a year earlier and exceeded the $69.95 million recorded for the whole of 2025.
Financial expert Iswell Emmanuel said lenders often adjust interest rates to account for expected defaults.
This means customers who repay their loans could indirectly bear some of the costs associated with borrowers who fail to meet their obligations.
He also questioned the impact of easy access to expensive credit on people already facing financial hardship.
Senior Research Analyst at BudgIT, Victor Ejechi, linked the expansion of digital lending to stagnant real incomes and increasing pressure on household budgets.
He distinguished between productive borrowing and consumption-related loans.
According to him, productive credit can support economic activity when the returns exceed borrowing costs. Consumption loans, however, may only postpone financial difficulties while adding interest obligations.
Ejechi called for clearer advertising of loan products, transparent disclosure of borrowing costs and policies that encourage productive credit.
He maintained that lasting relief would require improvements in household finances, including lower food, housing, healthcare and education costs, alongside better real wages.
Financial literacy advocate Oluwatosin Olaseinde also cautioned investors against judging OPay solely by its popular payment application.
She explained that its expanding lending operations exposed the company to credit defaults and regulatory challenges beyond the risks associated with payment services.
For investors, rising loan income may strengthen earnings, but increasing defaults and credit-loss provisions could undermine profitability.
For borrowers, meanwhile, access to credit may offer temporary relief, but the long-term consequences depend on whether they can afford the repayment terms.
FCCPC Introduces Rules to Protect Digital Loan Customers
Regulators have also faced increasing pressure to address complaints involving digital lending platforms.
The Federal Competition and Consumer Protection Commission (FCCPC) has granted full or conditional approval to nearly 500 digital money-lending applications.
However, more than 100 illegal or non-compliant platforms have faced blacklisting, flagging or removal from the Google Play Store over alleged privacy violations, harassment and other lending abuses.
The commission introduced the Digital, Electronic, Online or Non-Traditional Consumer Lending Regulations (DEON) 2025 to strengthen protections for digital credit users.
The regulations address lender registration, disclosure of loan conditions, lending practices and debt recovery procedures.
They followed complaints involving harassment, data breaches and unethical debt collection.
Although the expansion of regulated digital lending has improved access to credit, concerns remain over expensive interest rates, aggressive recovery practices and repeated borrowing to settle existing debts.
As household incomes struggle to keep pace with living expenses, analysts warn that easier access to credit cannot replace the need for affordable loans and stronger purchasing power.
Without effective consumer protection and improvements in household earnings, digital borrowing could offer millions of Nigerians temporary financial relief while leaving them with even heavier debts.