By Babajide Komolafe

“I am a civil servant on Grade Level 12 salary but I use 70% of my earnings to service debts from bank loans. How can I get out?”

The above request was from a reader who has a Masters Degree in Accounting and has recently commenced his ML Doctorate Degree program.

Though well educated, he has joined many Nigerians who have fallen into the trap of debt. People fall into the trap of debt due to various reasons some of which include indiscipline, greed and ignorance.

An experienced medical doctor once said in a health seminar that every medicine is poisonous. The same is true for most loan offers. They are financial poisons.

They may offer you some relief but the unexpected side effects can be very painful. In Nigeria today, the next great source of financial loss, second to ponzi schemes is loan offers. If you are not disciplined and knowledgeable, you will fall victim.

This is because there is now a huge offer of loans, easy to access from almost all the financial institutions in Nigeria. Some of them come in the form of loan apps. Some of them are targeted at civil servants and people working in ‘secure employment’.

Unlike in the past, when you had to visit the bank, complete documents, and wait for days to get a loan, most current loan offers just require your NIN, BVN, employment status, and salary bank account. Once you supply this information, with a click, you get the loan.

And in some cases, you don’t even need to apply, the loan is forced on you, and you just get a credit alert. The first danger is that these loans come with a monthly interest rate, which appears low and affordable, but is highly costly if the loan is not repaid within a month, or in a short period of time. For example, an interest rate of 5% per month actually translates to 60% per year.

This means, if you take a N100,000 loan at 5% interest, your monthly interest payment is N5,000. Over 12 months, you would have paid N60,000 as interest. And over, 24 months period, you would pay N120,00 as interest which is more than the amount you borrowed. That is the predicament of many Nigerians today, and most of them are salary earners like the civil servant who sent the request above.