How loan apps calculate your loan amount and how to increase it

Online mobile finance providers are everywhere on app stores. These apps offer borrowers loans for personal emergency uses and business uses. The entire business model of these companies is to provide short term loans to their customers and charge an interest on every transaction. But how do these money lenders calculate how much they should borrow each customer, for how long and how much interest they should charge on each loan?

If you have ever taken a loan from an online money lenders, or attempted to take one, you will notice that your loan offer, interest and tenure is usually significantly less than what is advertised on the app.

For example, Xcredit loan app advertises that its interest rate is between 12% – 36%APR, with 0% service fee. Tenure between 91 to 360 days with a maximum loan amount N500,000.
Example: If the loan amount is ₦5,000, the loan term is 180days, and the Interest rate is 12%, the total Interest should be ₦5,000 * 12% = ₦600.

In reality, the majority of loan term offered on the app is usually less than 30 days and most customers don’t get loans anyway near N500,000. The app does advertise that you can build up your loan amount by repaying on schedule, but still most customers don’t see significantly higher loans.

Factors that affect your loan

When you download and install any online loan app, you will notice that the app usually ask for permission to access your contacts list and SMS. This is because the app uses artificial intelligence AI to analyze your data and build both your credit score and credit worthiness.

What the app is doing is going through your SMS to check for bank alerts and determine how much money is coming in and out of your accounts.

Most apps will also ask for your Bank Verification Number BVN to see your credit history with other lenders and to see if you have any outstanding loans you are yet to pay.

How to get higher loan amounts from online apps

The apps are in business to make money, so before they give you a loan, they have to determine if you can repay. They do this by going through your history. You can improve you loan amount by

  1. Keeping records of your bank alerts: the AI in the loans have been trained to collect and analyze this data point, the more credit alerts on your phone, the higher your chances of getting a higher loan. Don’t delete your bank SMS alerts.
  2. Repay all outstanding loans before applying for a new loan: this should go without saying, the apps will analyze your BVN and if they find that you have outstanding loans from other lenders, it might reject your application or offer you a lower amount.
  3. Repay your loans on time: as stated earlier, these apps rely on data, they keep a record of your loan behavior – they know when and how you repay. Repay your loans as at when due to build up your profile.
  4. Be patient and establish trust: for practical reasons, you cannot expect to be borrowed millions or hundreds of thousands at your first try. You have to earn their trust first. Start by taking the small amounts you are given and then you can repay on time and qualify for a higher amount.

It can be a bit disappointing after you’ve downloaded a loan app and you are expecting to be offered a reasonably large loan amount, most especially when you are attracted by their ads in the first place only to be offered a small amount less than N5,000. But if you keep your bank alerts records, repay your outstanding loans on time and build trust, you will soon qualify for those big loan amounts that attracted you in the first place.


A writer! Columnist and an academic researcher
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