how to calculate small loan repayments and cost

Before you accept any small loan, two numbers matter more than anything a lender's website highlights: the monthly repayment you will have to find, and the total amount you will pay back. Online calculators produce both in seconds, but they are only as good as the figures you put in, and they rarely show how the result is built.

This page walks you through the calculation by hand, with worked examples, so you can check any quote, compare offers fairly and spot when a "low" figure hides a high cost. Mini-pret.com does not lend; the examples below are illustrations, not offers.

The figures you need before you start

• Amount borrowed (the principal): the money actually paid to you.
• Term: the number of repayments, usually months.
• Interest rate: ideally the rate per period, or the annual rate you can convert.
• Fees: arrangement, broker, membership or express-payout charges.
• Repayment pattern: equal instalments, a single lump sum, or weekly payments.

If a lender will not give you all of these in writing before you commit, that is a reason to look elsewhere.

The standard instalment formula

Most instalment loans are repaid in equal amounts that combine interest and capital. The monthly payment is:

Payment = P × r ÷ (1 − (1 + r)^(−n))

where P is the amount borrowed, r the monthly interest rate written as a decimal, and n the number of months. In words: divide the monthly rate by one minus (1 + r) raised to the power of minus n, then multiply by the amount borrowed. Any spreadsheet can do this with its built-in payment function.

Worked example: 500 over six months

Suppose you borrow 500 at a monthly rate of 2% (r = 0.02) over six months (n = 6). The formula gives a payment of about 89.26 per month. Six payments total about 535.58, so the interest costs you roughly 35.58.

Worked example: 1,000 over twelve months

At an annual rate of 10% (r = 0.10 ÷ 12), the monthly payment is about 87.92 and the total repaid about 1,054.99. At 30% a year, the payment rises to about 97.49 and the total to about 1,169.85. The difference of more than 100 on the same 1,000 shows why the rate deserves more attention than the monthly figure alone.

From monthly rate to APR

The APR (annual percentage rate) is designed to let you compare loans of different shapes. It includes the interest and the compulsory fees, expressed as a yearly rate. Two things to keep in mind:

• In the UK, the APR is an effective annual rate, so compounding is included. A monthly rate of 2% corresponds to about 26.8% a year, not 24%.
• In the USA, the APR disclosed under federal truth-in-lending rules is generally the periodic rate multiplied by the number of periods, so the same 2% a month would be shown as about 24%.

Whichever country you are in, compare APRs calculated the same way, for the same amount and term. For very short loans the APR can look extreme even when the cash cost is modest, so always read it alongside the total repayable.

Adding fees and seeing their real weight

Fees change the picture more than many borrowers expect. If the 500 loan above also carried a 25 arrangement fee deducted from the payout, you would receive only 475 but still repay about 535.58. Your real cost would be about 60.58 on 475, a much higher effective rate than the headline 2% a month.

The same logic applies to cash-advance apps that charge a flat fee or a subscription instead of interest. Divide the fee by the amount advanced, then scale it to a year based on how many days you kept the money. Our page on loan apps and their fees explains these charging models.

Short-term loans and the UK price cap

For high-cost short-term credit, the FCA caps interest and fees at 0.8% per day of the amount borrowed, limits default fees, and ensures you never repay more than twice the amount borrowed in total. On 100 borrowed for 30 days, the cap means interest and fees cannot exceed 24. This is a ceiling, not a target: many cheaper options exist. In the USA, limits depend on the state, so check your state regulator's rules.

A checklist for using any calculator

• Enter the amount you will actually receive, not the gross amount if fees are deducted.
• Use the exact term offered, including any payment holiday at the start.
• Check whether the rate shown is annual, monthly, weekly or daily.
• Add every compulsory fee to the total repayable.
• Compare the total repayable across offers, not just the monthly figure.
• Test what happens if you pay one month late: ask the lender for the exact charge.
• Check that the monthly payment fits your budget after rent, bills and food.

When the numbers say no

A calculator is also a reality check. If the repayment would leave you short every month, borrowing is likely to lead to more borrowing. Consider cheaper or free options first: a credit union loan, an interest-free zero-interest small loan where one genuinely exists, a payment plan with the creditor, or government and local hardship support. Free advisers at MoneyHelper and Citizens Advice can build a budget with you and check what help you are entitled to.

Be wary of anyone who offers to "guarantee" a better result if you pay a fee upfront, or who contacts you on social media after you have used an online calculator. Legitimate lenders never ask for payment before releasing a loan.

Comparing offers side by side

Once you have two or three quotes, write them in a simple table: amount received, term, monthly payment, total repayable, APR, fees and early-repayment terms. The cheapest loan is usually the one with the lowest total repayable for the same amount and term that you can comfortably afford. For help identifying who to ask for quotes, see our guide to types of small loan lenders, and for UK-specific rules, our overview of small loans in Britain.