Flat rate or declining balance
Small loans are quoted in two ways. A declining-balance rate charges interest on what you still owe, so each repayment pays less interest than the one before. A flat rate charges interest on the original amount for the whole term, even though you owe less every month, so the same figure costs far more. A flat 18% is not an 18% loan.
This calculator works out both, and for a flat quote it shows the declining-balance rate that would give the same repayments, which is the figure to compare with a bank loan.
Worked example: £5,000 over 24 months
Take £5,000 at 12% on a declining balance over 24 months, repaid monthly, with a 2% fee taken from the cash paid out. The repayment is £235.37, so you repay £5,648.82 and the interest is £648.82. The fee is £100, so you receive £4,900.00, the interest and fee together cost £748.82, which is 14.98% of the amount, and the effective yearly rate with the fee included is 14.99%.
A flat rate costs more than it looks
Take £3,000 at a flat 18% over 18 months with a 3% fee. The repayment is £211.67 a month, the interest is £810.00, and the interest and fee together cost £900.00, which is 30.00% of the amount. The effective yearly rate with the fee is 42.65%, and the same repayments on a declining balance would be a rate of 31.76%.
Weekly repayments with insurance and compulsory savings change the picture again. £1,200 at a flat 20% over six months, repaid weekly, with a 3% fee, a 1% insurance charge and 10% held as savings, is £50.77 a week for 26 weeks. You repay £1,320.00, pay £48.00 of fee and insurance, have £120.00 held back and returned at the end without interest, and receive £1,032.00. Because the loan is so short, the effective yearly rate is 251.76% and the declining-balance equivalent is 37.40%.
If the aim is to build a credit record, use the credit builder loan calculator.
What this calculator does not tell you
It assumes level repayments, a fee and insurance taken from the cash paid out and savings returned at the end with no interest. It does not model late fees, a grace period, group-lending rules or a variable rate, and it does not say whether a lender will approve the loan. The rate you enter is an assumption: use the rate on your agreement. The UK government's Start Up Loans scheme, an unsecured personal loan with a fixed 7.5% rate for people starting a business, is a different product with its own calculator.
Use the right country page
This page stays in pounds and uses UK terms. The country choices above the inputs open separate local pages. Choosing United States opens the US microloan calculator, which uses a loan fee, shows the effective yearly rate as a nominal rate and checks the SBA Microloan limits. The inputs reset and amounts are not converted.
Inputs for the microfinance loan calculator
Loan amount
The amount you borrow, before fees.
How the rate is quoted and the rate
Declining balance or flat on the original amount, and the yearly rate on your quote.
Term and repayments
The months you take to repay and whether you pay monthly, fortnightly or weekly.
Fee, insurance and savings
Percentages of the amount. The fee and insurance are taken from the cash you receive; savings are held back and returned at the end.
CALCULATOR QUESTIONS
UK microfinance loan calculator questions
What is the difference between a flat rate and a declining-balance rate?
A declining-balance rate charges interest on what you still owe. A flat rate charges it on the original amount for the whole term, so the same figure costs much more.
How much does a £3,000 microfinance loan at a flat 18% cost?
Over 18 months with a 3% fee, £900.00 in interest and fee, an effective yearly rate of 42.65%.
Why is the effective rate higher than the quoted rate?
Because fees and insurance reduce the cash you receive while you repay the full amount, and a flat rate keeps charging interest on money you have already repaid.
Do I get compulsory savings back?
Usually at the end of the loan, without interest. This calculator returns them with the last repayment.
Can I repay weekly?
Yes. Choose weekly or fortnightly repayments. The number of repayments follows the term.
What happens when I change country?
The United States option opens the separate US microloan calculator, in dollars, with the SBA Microloan limits. Your inputs are reset rather than converted.