As I walked out of the classroom after another long day at university, my phone buzzed with an alert. “Congratulations! You have been pre-approved for a loan of ?30,000. Repay in 30 days!” The message came from a loan app I had downloaded a few days earlier. In a moment of need, the idea of borrowing seemed like a quick fix. But little did I know, this convenience came with a price—one much higher than I anticipated.

Digital lending has exploded in Nigeria in recent years, driven by the rapid adoption of smartphones and fintech innovations. These platforms promise easy access to credit for individuals and small businesses who have traditionally been excluded from the formal banking system. But as much as these apps provide quick access to funds, many come with exorbitant interest rates that can spiral borrowers into deeper financial trouble.

In this post, I want to share my experience with digital lending apps and how they’re expanding access to credit, while also pointing out the dangers associated with high-interest loans.

How I Got Started with Digital Lending

It all started during my third year at the university. My laptop broke down right before the exam season, and I needed to get it fixed quickly. My savings weren’t enough, and asking family or friends for money didn’t feel right. That’s when I turned to a popular digital lending app. It was easy to use—I just downloaded the app, filled out a few personal details, and within minutes, the money was in my account.

The app boasted its simplicity and fast approval process. I didn’t need to provide collateral, and the entire process was completed on my phone. At the time, it seemed like a perfect solution to my urgent need. However, the interest rate was set at 25% for a 30-day period. That seemed manageable at first glance, but in hindsight, it was the beginning of a vicious cycle.

The Rise of Fintech and Digital Lending in Nigeria

Digital lending apps like Branch, FairMoney, and Palmcredit have made it easier than ever for Nigerians to access small loans with minimal documentation. Unlike traditional banks that often require long approval processes and collateral, fintech platforms offer instant loans based on data from your mobile phone, bank history, and social media activity.

For many Nigerians, especially those who are unbanked or have no formal employment, these platforms have filled a critical gap. They provide funds for emergencies, business expansion, and even education. But with these benefits come risks—especially the risk of falling into a debt trap due to the high interest rates associated with many of these loans.

The Hidden Cost of Digital Loans

About two weeks after taking out my first loan, I started receiving messages from the app reminding me about the approaching deadline for repayment. I was confident I could repay it on time, but life got in the way. Unexpected expenses came up, and I had to delay repayment by a few days. This is where the real cost of these loans became clear.

The app charged me an additional 5% penalty for each day I missed the repayment deadline. In no time, the 25% interest ballooned to nearly 35%. What started as a small loan to fix my laptop became a financial burden. Unfortunately, this story is all too common for Nigerians who use digital lending platforms. Some apps charge interest rates as high as 30% to 80%, making it almost impossible to repay loans on time, particularly for people with inconsistent income.

The high interest rates, combined with late fees and short repayment terms, trap many borrowers in a vicious cycle of debt. When you fail to pay back one loan, you are often forced to take out another loan from a different platform to cover the initial debt, compounding your financial problems.

The Negative Impact of High-Interest Loan Apps

Debt Traps
One of the most damaging effects of these high-interest loan apps is the creation of debt traps. When borrowers are unable to repay their loans on time, they face mounting penalties that make it harder to clear their debt. This can lead to a situation where individuals keep borrowing to repay existing loans, spiraling deeper into financial crisis.

Mental Health Issues
Constantly being bombarded with repayment reminders, threats from loan agents, and the fear of public shaming (as some apps contact family and friends when you default) can cause immense stress and anxiety. I’ve seen friends fall into depression after being harassed by loan recovery agents. The high pressure to repay, coupled with exorbitant interest rates, can take a toll on mental health.

Public Shaming and Privacy Invasion
Some digital lending platforms go beyond charging high interest rates; they also invade users' privacy. In Nigeria, there have been numerous reports of loan apps contacting borrowers’ relatives, friends, and colleagues to shame them into repaying their loans. This unethical behavior puts borrowers in a difficult position, often tarnishing their reputation and relationships.

Predatory Practices
Many of these platforms target vulnerable individuals who lack access to formal financial institutions. While they market their services as a quick fix for financial problems, their predatory interest rates and penalties are designed to maximize profit at the borrower’s expense.

How Fintech Can Offer a Solution

Despite the negative impact of some digital lending platforms, fintech holds immense potential to support financial inclusion in Nigeria. There are ethical and transparent loan apps that offer more reasonable interest rates, longer repayment terms, and financial education to their users.

One example is Carbon, a digital bank that provides loans but also educates borrowers about responsible borrowing. Carbon allows users to track their credit score, offering a more transparent approach to lending. FairMoney and Renmoney also provide more structured loans with clearer repayment plans and less predatory practices.

My Steps to Avoiding a Debt Trap

After my experience, I took some deliberate steps to avoid falling into a debt cycle:

Emergency Savings
I realized the importance of having an emergency fund to avoid relying on high-interest loans. I started saving small amounts every month using platforms like PiggyVest. This gave me a safety net for future emergencies.

Thorough Research
Now, before taking out any loan, I do thorough research on the lender’s terms and conditions. I check reviews from other users and ensure I understand the repayment terms and penalties.

Avoiding Impulse Borrowing
I only borrow when absolutely necessary and ensure I have a clear plan to repay the loan within the agreed time. I also make sure the interest rate is something I can manage.

Using Ethical Lenders
I’ve learned to opt for more ethical fintech platforms that prioritize responsible lending. These platforms offer more reasonable rates and give borrowers a chance to repay without excessive penalties.

Conclusion

Digital lending has undoubtedly expanded access to credit in Nigeria, especially for those excluded from the formal banking sector. However, the rise of loan apps with exorbitant interest rates poses a serious risk to borrowers. While these platforms provide much-needed financial support, they must operate with greater transparency, fairness, and consideration for their users' long-term financial health.

If you're considering using a loan app, my advice is to read the fine print, know what you're getting into, and have a clear plan for repayment. Remember, not all fintech platforms are created equal—choose wisely.