Should You Use Your 13th Month Bonus to Pay Off a Loan Early in Nigeria? What It Really Saves

December brings a lump of money for many salaried Nigerians: a 13th month salary, a Christmas bonus, or both. If you are also paying off a loan, the obvious question is whether to throw that money at the loan and be done with it sooner.

Sometimes that is one of the best things you can do with a bonus. Sometimes it saves you nothing at all. The difference comes down to one detail of your loan that most people never check.

The short answer

On a reducing-balance loan (the usual type for bank personal loans), paying early cuts the interest you pay. In our example, putting ₦246,000 towards a ₦1,000,000 loan at 30% a year saves ₦32,613, and the loan finishes two months early.
On a flat-rate loan (common with microfinance lenders and some loan apps), the interest is fixed on day one. Paying early may save nothing, unless your lender agrees to drop the interest for the months you didn't use. Ask before you pay.
Always ask for a "settlement figure" in writing. It tells you exactly what clears the loan today, including any early repayment charge.
Keep some money back for emergencies first. If you empty your account into the loan and then need cash in January, you may end up borrowing again at a worse rate.

First: how much of the bonus do you actually have?

Your bonus is taxed before you see it. In our guide Is your 13th month salary taxed?, someone on ₦300,000 a month who gets a one-month bonus keeps ₦246,000 after PAYE. We use that ₦246,000 in the examples below.

Example 1: a bank-style loan (reducing balance)

Say you borrowed ₦1,000,000 over 12 months at 30% a year, on a reducing balance. That means interest is charged each month only on what you still owe. (30% is just an example. Use your own loan's rate in the loan calculator.)

Monthly payment: ₦97,487.13
Total interest over the full year, if you never pay early: ₦169,845.52

You have made six payments, so you still owe ₦536,971.32. If you carry on as normal, the last six payments come to ₦584,922.78. That includes ₦47,951.45 of interest still to pay.

Now you put your ₦246,000 bonus into the loan. What you owe drops to ₦290,971.32. Your lender will usually offer you one of two choices.

Choice A: keep paying the same amount, and finish early.

You make three more payments of ₦97,487.13, and a small last one of ₦13,848.20.
Interest still to pay: ₦15,338.26
You save ₦32,613.18 in interest, and the loan ends two months sooner.

Choice B: keep the same end date, and pay less each month.

Your monthly payment drops to ₦52,825.83 for the last six months.
Interest still to pay: ₦25,983.69
You save ₦21,967.76 in interest, and you have about ₦44,661 a month more to spend in the new year.

Choice A saves more. Choice B gives you more breathing room each month. Both beat doing nothing.

To put the ₦32,613 saving in perspective, it is about 13% of the ₦246,000 you put in, over roughly half a year. It is guaranteed, and nobody taxes it. Compare that with what the same money would really earn sitting in your savings account over the same months.

Example 2: a flat-rate loan

Flat-rate loans work differently, and this is where early repayment often goes wrong.

Say you borrowed ₦500,000 over 6 months at 4% a month, flat. "Flat" means the interest is worked out once, on the full ₦500,000, for the whole loan:

Interest: ₦500,000 × 4% × 6 months = ₦120,000
Monthly payment: (₦500,000 + ₦120,000) ÷ 6 = ₦103,333.33

That "4% a month" sounds small. In truth, a flat 4% a month on this loan costs about the same as 78% a year on a normal reducing-balance loan, because you keep paying interest on money you have already paid back. Our guide to flat rate vs reducing balance explains why.

After three payments, you still have three payments left, which comes to ₦310,000. Now you want to clear it with your bonus. What do you owe?

If the lender drops the interest for the months you didn't use, you might settle for as little as about ₦250,000, the half of the ₦500,000 you have not yet paid back. That saves you ₦60,000.
If the contract says the full interest is due regardless, you still owe ₦310,000. Paying early saves you nothing. You have just paid the same money sooner.

Both happen. The only way to know is to read your loan agreement and ask the lender for a settlement figure before you pay a kobo. If paying early saves nothing, you might do better to keep the bonus and simply carry on with the normal payments.

Before you pay anything early: five questions

Is my loan reducing balance or flat rate? It is usually in the loan agreement, or ask the lender directly.
What is my settlement figure today? Ask for it in writing, with the date it is valid until.
Is there an early repayment charge? Some loans add a fee for paying early. Make sure the fee is smaller than the interest you save.
If I pay part of it, does my monthly payment go down, or does the loan end sooner? You may be able to choose. If you can, ask for the option that suits you (Choice A or B above).
Do I have other debts? If you have more than one loan, pay the most expensive one first. A loan app or a flat-rate loan usually costs far more than a bank loan, so that is normally the one to clear first.

When it's better to hold on to the money

Paying off debt early is good, but it is not the only good use of a bonus.

If you have no emergency savings at all, keep some of the bonus back. January is a costly month, with school fees and rent, and an emergency that forces you to borrow again will cost more than you saved.
If paying early saves little or nothing, as with some flat-rate loans, there is no prize for finishing early.
If the money is already promised, for example as school fees due in January, don't put it into a loan you will then have to top up.

Check your own loan

Put your loan amount, rate and term into the Mmiri loan calculator. Then run it again with a smaller amount owed, to see how much interest disappears. If your loan is flat rate, the calculator also shows what that rate really costs you in reducing-balance terms.

See how much an early payment saves on your loan →

The worked examples were calculated from the standard loan repayment formula and re-checked against the Mmiri loan calculator's own maths. The 30% and 4%-a-month rates are examples for illustration, not quotes from any lender. Your own rate, fees and early-repayment terms are set by your loan agreement. The ₦246,000 bonus figure is from our 13th month salary guide, which uses the Nigeria Tax Act 2025 tax bands. Figures checked as of October 2026. This article is general information, not financial advice.