How to Calculate the Real Cost of a Loan Before You Tap Accept

Loan apps sell you two numbers: what lands in your account and your “approved limit”. The number that decides your next three months is hidden in between — what you must repay, over how long. Here is the arithmetic that finds it, in two minutes, on your phone’s calculator.

Start with the only honest number: total repayment

Ignore the interest rate on the app’s homepage; interest is only one ingredient. Add every charge: interest, “service fee”, “verification fee”, “insurance”, “processing”, late-fee schedule. Then compute one subtraction:

True cost = total repayment − amount that actually landed in your account.

That single figure — naira, not percentages — is the price of the loan. A “₦20,000 loan” that disburses ₦20,000 and collects ₦26,000 in 14 days costs ₦6,000 for two weeks. Nothing on the marketing screen changes that.

Then annualise it — the number they hide

Two-week costs look small because they are small periods. Stretch the same price across a year and the picture changes brutally. There are 26 two-week periods in a year, so:

• ₦6,000 on ₦20,000 for 14 days = 30% per two weeks.
• Compounded across 26 periods, that is well over 1,700% a year.
• Even the simple, non-compounded multiple — 30% × 26 — puts the annualised cost above 700%.

You will never “pay” that full year — but the annualised rate is still the honest comparison yardstick, because it lets you place this loan beside a salary advance, a cooperative loan at 2–5% monthly, or a bank facility. Use one yardstick and the app’s marketing collapses.

Compare apples to apples: cost per ₦1,000 per week

When two apps quote different tenors and amounts, normalise everything to one unit: what does one week of borrowing ₦1,000 cost here?

• App A: ₦20,000 → ₦26,000 in 14 days. Cost ₦6,000 ÷ 20 (thousands) ÷ 2 (weeks) = ₦300 per ₦1,000 per week.
• App B: ₦15,000 → ₦17,250 in 7 days. Cost ₦2,250 ÷ 15 = ₦150 per ₦1,000 per week.

App B’s headline numbers look smaller; per unit per week it may still be the dearer or cheaper of the two — the division tells you which. This is how you compare any two offers without being steered by design.

Price the tenor, not just the fee

Short tenors are the trap inside the fee. A 7-day due date means one delayed salary converts a fee into a late fee into a rollover — which is where the real money is made. When you compute cost, also ask: what is the probability I can clear this on the due date? A loan you are 80% sure to repay on time and 20% sure to roll over has an expected cost closer to the rollover price than the sticker price. Rollover terms are one of the six make-or-break clauses in understanding your loan agreement.

A worked decision in four lines

• Amount received: ₦20,000. Total repayment: ₦26,000. Tenor: 14 days.
• True cost: ₦6,000 = 30% for two weeks.
• My income before due date: ₦35,000, of which essentials are ₦30,000.
• Repaying leaves ₦5,000 short of essentials → do not take this loan, or take a smaller one.

That last line is the entire point of the arithmetic: it converts a feeling (“I need cash”) into a decision (“this specific loan does not fit”). The alternatives worth running through the same formula are listed in safer ways to raise emergency cash.

Rules of thumb that survive any app

• Total repayment above roughly 15–20% of the disbursed amount for a two-week tenor is expensive money; above 25–30% it is predatory territory.
• Never accept a loan whose due-date repayment exceeds what your certain income leaves after essentials.
• Compute before you consent — once you tap accept, the price is yours; the pro borrowing habits start here.

The app sells you a limit. Arithmetic sells you the truth. Do the subtraction before the tap.