Explainer: Why car financing remains out of reach for most Nigerians

Owning a car in Nigeria through financing schemes remains out of reach for millions of Nigerians, as rising vehicle prices, high interest rates, and weak purchasing power continue to limit access to car ownership.

The combination of steep import duties, expensive loans, and weak credit capacity has made car financing viable only for a small segment of the population.

Industry experts say that while structured vehicle financing models exist, Nigeria’s income realities leave such schemes accessible mainly to high-income earners.

Adedeji Olowe, founder of Lendsqr, a global loan management system, told BusinessDay that while auto financing is technically possible in Nigeria, it cannot easily become a mass-market solution due to income limitations and loan affordability.

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“Cars are physical assets; the way they could structure it today is realistically possible, but it’s not going to be widespread,” Olowe said.

Etop Ikpe, CEO of Autochek Africa, said that the structures that gain traction in markets like Nigeria are built on payroll-linked financing and layered capital, which eliminates collection risk and translates into better pricing for borrowers, noting that commercial banks remain essential partners in this ecosystem.

Ikpe said that what moves the needle is when multiple instruments work together, commercial bank facilities, OEM-subsidised rates, DFI participation, and government-backed schemes layered to compress what the borrower actually pays.

He said that the most effective financing structures for the self-employed are those that recognise a vehicle can be both a personal and productive asset.

“When a borrower’s income is tied to mobility, even partially, the repayment logic is different, and lenders who build products that reflect that reality tend to build better portfolios,” he said.

Oloruntoba Anate, CEO & co-founder of Automat Hub Ltd., said that given the high interest rates, traditional bank loans are unfeasible, noting that the only viable model today is asset-backed private pools.

Anate noted that the auto financing scheme is feasible for low-income earners, but only as a productive asset (the vehicle must generate its own repayment), not for personal use.

However, Ikpe argued that under Nigeria’s current income realities, traditional vehicle loan structures remain largely out of reach for low-income earners.

According to him, at the country’s minimum wage level, the numbers simply do not add up for a standard auto loan product, noting that anyone suggesting otherwise hasn’t run the math.

“A responsible lender caps repayment at roughly one-third of verified monthly income. At N70,000, that’s N23,000 available for debt service. At current market rates, that services a loan of N800,000 to N1.2 million, depending on tenor. That doesn’t buy a roadworthy vehicle in today’s Nigeria, which starts at N3–4 million,” he said.

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He said minimum wage earners would need different financing structures, including cooperative schemes that pool equity and share risk, employer-facilitated loans repaid through payroll, or rent-to-own models where ownership transfers after the asset is largely paid down.

“Where lenders do stretch into lower-income segments, the safeguards are non-negotiable: 6–12 months of income evidence, 30–40 percent equity contribution, a guarantor, and comprehensive insurance. Without all four, you’re gambling with depositor funds,” Ikpe said.

Why auto financing schemes struggle

Over the years, auto financing schemes, including mobility-based models, have been introduced to expand access to vehicle ownership in Nigeria; however, most of these private operators’ models face structural issues ranging from high interest rates and poor credit reporting to hidden charges, unclear terms, and policy inconsistencies.

Anate said that auto financing in Nigeria is currently a trust and quality problem, and platforms in this space have struggled because of information asymmetry.

He called it the ‘Lemon Problem,’ stating that previous models were often asset-light, saying they were just websites connecting buyers and sellers, and most lenders have no physical asset or partnership with a direct car dealer or maintenance workshop.

“To succeed in Nigeria as a lender, you cannot just be a Fintech (the money). You must be an OpCo (the operator). The lenders have to touch the car, verify the VIN, and control the maintenance,” he said.

Ikpe stated that treating financing as a separate transaction, divorced from the purchase moment entirely, and treating Nigeria as one market, led to the consistent failure patterns.

“A salary-earner in Abuja, a trader in Onitsha, and a logistics operator in Lagos have completely different risk profiles and income patterns. One-size products consistently underperform, and embedded financing is not a feature; it’s the entire product experience,” he said.

Ikpe said in order of priority, cost of funds must come down, requiring DFI deepening, OEM participation, and sustained government intervention at scale, mature risk infrastructure, and OEMs must put skin in the game, subsidised rates, buyback guarantees, and residual value support.

“Where manufacturers have done this, penetration rates move. Nigeria has the population, the suppressed demand, and increasingly the digital infrastructure for a real auto financing market.

“What it has lacked is alignment of incentives across the value chain. The task now is scale,” he said.