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The short answer
The interest in a hire purchase or 'pay small small' deal is the gap between the cash price and the total of the deposit and all instalments. To turn that gap into a rate, use a spreadsheet's RATE function on the amount financed (cash price minus deposit) and the instalments. In our example, a ₦450,000 phone sold for ₦540,000 on instalments carries about 6.8% a month.
Where the interest hides
Instalment sellers of phones, motorcycles, tricycles, generators, fridges and furniture often quote only two numbers: what you pay now and what you pay each week or month. There may be no interest rate on the paper at all. But if the same item can be bought outright for less, the difference is the price of time, which is interest by another name.
Three numbers are all you need:
- Cash price: what you would pay today in one go, from the same seller.
- Deposit: what you pay upfront on the instalment plan.
- Instalments: the amount, how often, and how many.
If the seller will not tell you the cash price, ask two or three other sellers for theirs. Without it you cannot know the cost of the credit.
Worked example 1: a phone over six months
Example only. Cash price ₦450,000. Instalment plan: ₦90,000 deposit, then six monthly payments of ₦75,000.
| Step | Calculation | Result |
|---|---|---|
| Total paid on the plan | ₦90,000 + 6 × ₦75,000 | ₦540,000 |
| Extra over cash price | ₦540,000 − ₦450,000 | ₦90,000 |
| Amount financed | ₦450,000 − ₦90,000 | ₦360,000 |
| Flat rate equivalent | ₦90,000 ÷ ₦360,000 ÷ 6 | 4.17% a month flat |
| True monthly rate | =RATE(6, -75000, 360000) | about 6.77% a month |
| Nominal annual | 6.77% × 12 | about 81% |
| Effective annual | (1.0677)^12 − 1 | about 120% |
The deposit matters. It is not credit, so the interest is measured only on the ₦360,000 you are effectively borrowing. And because you pay that down monthly, the true rate (6.77%) is well above the 4.17% flat figure. The flat versus reducing balance comparison explains why.
Worked example 2: a motorcycle paid weekly
Example only. Cash price ₦1,200,000, no deposit, 52 weekly payments of ₦30,000 (total ₦1,560,000).
- Extra over cash price: ₦360,000.
- Weekly rate: =RATE(52, -30000, 1200000) gives about 1.04% a week.
- Nominal annual: 1.04% × 52 = about 54%.
- Effective annual: (1.0104)^52 − 1 = about 71%.
Weekly payments are common on work vehicles because riders earn daily. Keep the units consistent: a weekly payment needs a weekly rate and the number of weeks. Microsoft's RATE documentation makes the same point about months, and notes that RATE works by iteration and may need a guess value if it shows #NUM!.
Costs that are not in the instalment
The headline instalment often leaves out:
- registration, insurance or tracking device fees on vehicles;
- a fee to set up the plan;
- penalties for a missed week or month, which can be a fixed fee or a daily charge (see late fee versus penalty interest);
- what happens to the item and to money already paid if you stop paying. Under many hire purchase arrangements you do not own the item until the last payment.
Add any upfront fee to the deposit when you work out the total, and read the repossession terms before signing.
Compare with saving up instead
Instalment plans buy you time: you have the item now rather than later. It helps to see what that time costs. Example only: using the phone plan above, suppose you instead put aside the same ₦90,000 now and ₦75,000 a month. After four more months you would have ₦390,000; after five, ₦465,000, enough to buy the phone at the cash price of ₦450,000 with ₦15,000 left. So the instalment plan gives you the phone about five months earlier, and the price of those five months is the ₦90,000 extra, minus the ₦15,000 you would have had left over: roughly ₦75,000 for five months' early use. For a phone or motorcycle you need to earn a living, that may be worth paying. For something you want but do not need yet, saving first is usually cheaper. The arithmetic does not make the decision for you; it shows what you are paying for.
What to check first
- Get the cash price in writing from the same seller, and one or two others.
- Write down deposit, instalment, frequency and number of payments.
- Ask for every fee and the penalty for a late payment.
- Ask when ownership passes to you.
- Run RATE on the amount financed and compare the result with a loan you could get elsewhere.
If an instalment plan is run through a digital lender, the FCCPC's 2025 digital lending regulations require interest rates, repayment terms and fees to be fully disclosed before the transaction is completed (Regulation 17(a)). You can check whether a lending app is registered using our guide checking a loan app on the FCCPC register.
Where Pryme fits
Loans on Spaces, lent by Solid Allianze Microfinance Bank Ltd, can be spent only with merchants in Spaces, in sectors such as Grocery/Retail and Pharmacies. The agreement shows the amount, cost and repayment date in full before you accept, so you can compare it with an instalment plan using the same arithmetic. See Loans on Spaces.
Questions people ask
How do I calculate interest on hire purchase?
Subtract the cash price from the total of deposit and instalments to get the cost. For a rate, use =RATE(number of payments, -instalment, cash price − deposit) in a spreadsheet.
Is buying a phone on instalment in Nigeria expensive?
It depends on the gap between the cash price and the total you pay. In our example, ₦90,000 extra on ₦360,000 financed over six months worked out at about 6.8% a month.
What is the difference between hire purchase and a loan?
With a loan you get cash and own what you buy. Under many hire purchase deals the seller keeps ownership until the last payment. The arithmetic of the cost is the same.
Can I pay off a hire purchase early?
Ask the seller whether you will get any discount for settling early. If the price is fixed, paying early may save nothing.
Sources
- Microsoft Support: RATE function · accessed Oct 2026
- FCCPC: Digital, Electronic, Online or Non-Traditional Consumer Lending Regulations 2025 · 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.