Free tool for lenders
Work out the real cost of any loan you give out, with every fee counted. Then hand your borrower a one-page summary they can read before they sign.
6 payments of ZMW 2,720.00 (Monthly)
Three things push the true cost above the number on the loan form.
A flat rate charges interest on the full amount for the whole term, even as the borrower pays it down. A reducing balance rate charges only on what is still owed. At 10% a month over six months, flat interest on ZMW 10,000 is ZMW 6,000. On a reducing balance it is ZMW 3,776.
Take a 5% processing fee off a ZMW 10,000 loan and the borrower walks out with ZMW 9,500, but repays and pays interest on ZMW 10,000. They are paying for money they never received, so the real rate rises. The shorter the loan, the more it rises.
Borrowers who see every fee before they sign are less likely to dispute charges later and more likely to borrow from you again. Many regulators now expect a key facts statement before disbursement, so a clear one-page summary also keeps you ready for an inspection.
APR, the annual percentage rate, is the yearly cost of a loan with interest and every required fee included, shown as one percentage. Because it puts every loan on the same yearly basis, a borrower can compare a 30-day loan with a 12-month one, or your offer with someone else’s.
It lists every cash flow: the money your borrower actually receives on day one, and each repayment they make. It then finds the rate per period at which those repayments are worth exactly what they received, and multiplies it by the number of periods in a year. The compounded annual rate is shown underneath for reference.
10% per month is 120% a year before compounding, not 10%. Borrowers often hear “ten percent” and assume the yearly figure. Always say the period next to the rate, and show the APR so the yearly cost is never in doubt.
Yes, if the borrower has to take it out to get the loan. A compulsory charge is part of the cost of borrowing whatever it is called. Leave out only optional products the borrower chose freely and could cancel without affecting the loan.
Three things usually stack up: interest charged flat on the original amount, fees taken off the disbursement so the borrower receives less than they pay interest on, and short terms that annualise those fees over a few weeks instead of a year. Each one is legitimate. Together they can double the headline rate.
Yes. Set the term in days or weeks and pick the repayment frequency. The APR is annualised from the actual schedule, so a 30-day loan repaid daily and a 12-month loan repaid monthly come out on the same yearly basis.
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