Why the Rising Cost of Credit Is Changing How Nigerians Borrow in 2026

I have been reporting on Nigeria’s banking system for the last six years, and the most surprising development for me this year is that Nigerians are finally giving up on trying to beat inflation by taking loans. They are now choosing to avoid debts altogether, even if that means saving less and less.

That may sound surprising, but there is a very simple explanation, which has to do with the fact that the old rule of thumb in personal finance, according to which one should take loans when inflation is high in order to buy assets, is no longer working.

The Real Cost of Borrowing Right Now

The Central Bank of Nigeria’s Monetary Policy Committee kept the Monetary Policy Rate (MPR) at 26.5% at its July 2026 meeting, the second consecutive hold after decreasing the rate by 50 basis points at the February 2026 meeting. The headline inflation was at 15.9% in June, having risen for the second consecutive month, after eleven months of declines, reports Vanguard.

Let’s do the math on this one. At the MPR of 26.5%, corporate lending rates for Nigerian individuals and small businesses default to over 30%, typically adding 5-10% margin for banks. With the MPR at the said level, if I borrow money to buy an asset that appreciates at the rate of 15% per annum, which is inflation, I am already losing money on the rate differential. If the item purchased is to appreciate at the same rate as inflation, I am losing money on the deal before I make a profit. Every bank borrower in the country is already doing this maths before going to their lenders in Abuja, Lagos, and Port Harcourt.

The Cash Reserve Ratio (CRR) is another variable affecting lending rates. From 2025 through 2026, the CBN has maintained the CRR at 45% for deposit money banks and 16% for merchant banks, constraining the amount of funds available for lending, which explains why lending rates have not decreased significantly despite the reductions in the MPR.

Why “Borrow to Hedge Inflation” Stopped Working

The assumption that underpins borrowing to hedge inflation is that the rate of return on the asset bought with the borrowed money should exceed the cost of borrowing. This is no longer the case; the premium has vanished, and in some instances, the cost of borrowing exceeds the returns.

I have seen clients and readers ask this question and do the maths. At 30%, the rate of return on real estate, stocks, and other assets purchased with the borrowed amount should be more significant than the cost of funds in order to generate profit after servicing the debt. With the current state of Nigeria’s economy, few assets have the potential to generate returns substantially higher than inflation, let alone the cost of funding.

What I’m seeing are clients and readers questioning the very idea that funding a venture with debt is the best option. Even while inflation continues to erode wealth, businesses and individuals are searching for ways to profitably fund their aspirations and goals.

Where Are Nigerians Investing Their Money?

Here are three trends I’ve noticed among SMEs and investors:

Equity over debt. More small businesses are raising money through partnerships, grants, and equity financing rather than bank loans. You give up a share of ownership, but you are not locked into a repayment schedule priced at 30%.
Government securities over private borrowing. Instruments like FGN Savings Bonds and Nigerian Treasury Bills are attracting savers who would previously have borrowed to invest elsewhere. When a low-risk government instrument pays a meaningful yield, the incentive to take on expensive private debt weakens further.
Working capital discipline over expansion debt. Rather than borrowing to expand, businesses are tightening cash conversion cycles, collecting receivables faster, and treating existing cash flow as their real source of “free” capital.

What This Means for Your Own Finances

If you have existing debts or are considering incurring new ones, here are some crucial considerations:

What is your effective interest rate on the debts you already have or plan to acquire?
What is the projected rate of return on the asset you intend to buy with the borrowed cash? The rate of return must be higher than the cost of the loan for you to profit from the investment.
Are there various lower-cost funding options – such as equity participation or government securities – that might help you achieve your financial objectives?

Your debts should allow you to accomplish something meaningful in your life, not just lose money. I’m not suggesting that you shouldn’t take loans; rather, I’m saying that before taking on large amounts of debt, you should be aware of all of your options, including those that may be less costly and hence more appealing.

What Lies Ahead

The MPC’s next steps will be critical in the near term. If the headline inflation begins to fall, there is room for further reductions in the MPR, which would result in lower corporate lending rates. However, because the rate has been rising for the last two months, the MPC may be hesitant to reduce it in order to avoid jeopardizing the progress made toward curbing inflation.

Until then, all bets are on the Nigerian borrowers, who are already calculating that cheaper capital will always beat inflation. If you are weighing your own options, our guide to smart investment strategies for young Nigerians is a useful next read.

This article is for informational purposes and does not constitute financial advice. Interest rates, inflation figures, and monetary policy positions cited are accurate as of publication and are subject to change following future MPC meetings. Speak with a licensed financial advisor before making borrowing or investment decisions.

Sources: Central Bank of Nigeria Monetary Policy Decisions · Nairametrics · Vanguard · Trading Economics · Debt Management Office Nigeria