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The short answer
An early repayment rebate is the part of pre-set interest a lender gives back when you settle early. The three common methods are pro-rata (unused months as a share of the tenor), the Rule of 78 (which front-loads interest so the rebate is smaller) and the actuarial method (recalculating as if interest ran on the reducing balance). The method is set by your agreement, so ask for it in writing.
Why a rebate exists at all
On a flat-rate or fixed-fee loan, the total interest is fixed when you sign. If you pay everything off halfway through, you have technically agreed to pay all of it. A rebate is the lender's agreement to hand back some of that interest because it lent you the money for less time than planned. On a reducing-balance loan there is usually nothing to rebate: interest simply stops when the balance reaches zero, as explained in whether paying early reduces interest.
The FCCPC's 2025 digital lending regulations require interest rates, repayment terms and fees to be fully disclosed before a loan is completed (Regulation 17(a)). The regulations we read do not set a rebate method. Your agreement, and what the lender confirms in writing, is the reference.
The example loan
Example only. ₦200,000 borrowed for 12 months at a flat 3% a month. Interest is ₦200,000 × 3% × 12 = ₦72,000. Total repayable ₦272,000, or ₦22,666.67 a month. You have made four payments and want to settle. Eight months remain, with ₦181,333.33 of instalments still due.
Method 1: pro-rata (straight-line)
The lender treats interest as earned evenly. Unused months ÷ total months × total interest.
- Formula
- Rebate = Total interest × (months remaining ÷ total months)
- Calculation
- ₦72,000 × 8 ÷ 12 = ₦48,000
- Settlement
- ₦181,333.33 − ₦48,000 = ₦133,333.33
The settlement equals exactly the principal you have not yet repaid (₦200,000 − 4 × ₦16,666.67). This is the most generous of the common methods for a flat loan.
Method 2: the Rule of 78 (sum of digits)
This older method assumes more of the interest is earned in the early months. For a 12-month loan, the months are numbered 12, 11, 10 down to 1; those numbers add up to 78. Month 1 is treated as earning 12/78 of the interest, month 2 earns 11/78, and so on. The rebate is the share belonging to the remaining months.
- Remaining months' digits
- 8 + 7 + 6 + 5 + 4 + 3 + 2 + 1 = 36
- Calculation
- ₦72,000 × 36 ÷ 78 = ₦33,230.77
- Settlement
- ₦181,333.33 − ₦33,230.77 = ₦148,102.56
The same early settlement costs ₦14,769.23 more than under pro-rata. For other tenors, the denominator is n(n+1)÷2: 21 for six months, 300 for 24 months.
Method 3: actuarial (reducing-balance recalculation)
Here the lender asks what you would owe if the loan had been an equal-instalment loan on the reducing balance at its effective rate. The settlement is the present value of the remaining instalments at that rate. This needs a spreadsheet: work out the monthly rate that makes 12 payments of ₦22,666.67 equal ₦200,000 (with Excel's RATE function), then discount the eight remaining payments at that rate with PV. The result usually sits between pro-rata and Rule of 78. Our spreadsheet loan calculator guide walks through RATE and PV.
A quick way to check which method was used
If a lender quotes a settlement figure without explanation, you can often tell the method from the number. Subtract the quoted figure from your remaining instalments to get the rebate actually given. Divide by the total interest. A result equal to months remaining ÷ total months (here 0.667) points to pro-rata. A result equal to the Rule of 78 fraction (here 36 ÷ 78, or 0.462) points to Rule of 78. Anything in between suggests an actuarial calculation or a fee netted off. Anything below the Rule of 78 fraction suggests a fee or minimum-interest clause is being applied, which you are entitled to ask about.
The three methods side by side
| Method | Rebate | Settlement after 4 payments |
|---|---|---|
| No rebate | ₦0 | ₦181,333.33 |
| Rule of 78 | ₦33,230.77 | ₦148,102.56 |
| Pro-rata | ₦48,000.00 | ₦133,333.33 |
Questions to ask before you pay
- Is any interest rebated if I settle today? Under which method?
- What is my exact settlement figure as at a stated date, split into principal, interest and fees?
- Is there an early repayment or liquidation fee, and how is it calculated?
- Are any upfront fees refunded? (Usually not, but ask.)
- Will you confirm closure in writing once paid?
If the figure quoted does not match any method above, ask the lender to show the working. For digital lenders, Regulation 21(b) of the FCCPC regulations lets a consumer obtain a statement within 24 hours of asking, which gives you the payment history to check against. You can rebuild the balance yourself with our guide to working out what you still owe.
Where Pryme fits
For Loans on Spaces, lent by Solid Allianze Microfinance Bank Ltd for spending with Spaces merchants, the full cost and repayment date are in the agreement you accept before anything is drawn. Read the repayment terms there before you plan an early settlement; repaying a Loan on Spaces early covers the steps.
Questions people ask
How do I calculate rebate on early loan repayment?
Find the method in your agreement. Pro-rata: total interest × remaining months ÷ total months. Rule of 78: total interest × sum of remaining month digits ÷ n(n+1)/2. Actuarial needs a spreadsheet.
What is the Rule of 78 in loans?
A way of splitting flat interest that treats early months as earning more interest. It gives a smaller early-repayment rebate than a straight pro-rata split.
Must a Nigerian lender give me a rebate for early payment?
The FCCPC 2025 digital lending regulations we read require full disclosure of terms but do not set a rebate rule. The loan agreement decides, so ask before paying.
Why is my settlement figure higher than the principal left?
Either no rebate applies, the lender uses a less generous method such as Rule of 78, or fees are added. Ask for a written breakdown.
Sources
- FCCPC: Digital, Electronic, Online or Non-Traditional Consumer Lending Regulations 2025 · accessed Oct 2026
- Microsoft Support: RATE function · accessed Oct 2026
- Microsoft Support: PMT function · accessed Oct 2026
This article is general information, not financial, legal or tax advice. Products described are provided under the terms on this site and are subject to regulation and eligibility.