How Compound Interest Makes Your Debt Double Faster Than You Think

Most people understand that loans come with interest. What many don’t realise is just how fast that interest grows — especially when it’s left unpaid.

At Level Africa, we often meet clients who’ve borrowed a small amount, only to find that it quietly doubled within a few years. The reason? Compound interest.

Let’s break it down.

What is Compound Interest — and Why Does It Matter?

Compound interest means your loan doesn’t just grow on the original amount you borrowed — it grows on the interest, too.

If you’re paying 20% interest annually, and you don’t pay off the debt, that interest gets added to your balance. Next year, you’re paying interest on that higher amount. This cycle continues, and suddenly what felt manageable is out of control.

Real Example

Suppose you borrow $1,000 or ₦100,000 at 20% interest (a common rate for short-term loans or digital credit apps). You don’t make any payments.

Year 1: You owe $1,200
Year 2: You owe $1,440
Year 3: $1,728
Year 4: Over $2,000

Your debt has doubled — and you didn’t borrow a single extra cent.

The Risk: Debt That Grows Faster Than You Can Pay It

If you don’t understand compound interest, debt feels invisible. It doesn’t ask for attention — until it becomes overwhelming. By then, repayment feels impossible, and borrowers often turn to new loans just to keep up.

This cycle can trap even the most hardworking, well-meaning person.

How to Take Back Control

At Level, we help clients:

Identify high-interest debt that’s silently growing
Create a repayment plan to stop the compounding early
Build forward with low-risk investments once that debt is cleared

You don’t need to be afraid of loans. But you do need to understand how they behave — especially over time.

Want to Go Deeper?

This is just one of the 7 foundational financial principles we cover in this guide:
👉 How financially literate are you, really? These 7 lessons will tell you

It’s not about having all the answers. It’s about knowing what to look out for — and how to move forward with confidence.