Formula to Calculate Small Loan Repayments

Read about the formula for calculating small loan repayments right here with Savvy.

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, updated on December 22nd, 2023       

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Written by 
Savvy Editorial Team
Savvy's content writing team are professionals with a wide and diverse range of industry experience and topic knowledge. We write across a broad spectrum of finance-related topics to provide our readers with informative resources to help them learn more about a certain area or enable them to decide on which product is best for their needs with careful comparison. Meet the team behind the operation here. Visit our authors page to meet Savvy's expert writing team, committed to delivering informative and engaging content to help you make informed financial decisions.
Our authors
, updated on December 22nd, 2023       

Fact checked

At Savvy, we are committed to providing accurate information. Our content undergoes a rigorous process of fact-checking before it is published. Learn more about our editorial policy.

If you’re looking into taking out a small loan for any number of purposes, it’s important to understand the math behind repaying it. Fortunately, our guide breaks down the formula for small loan repayments for you right here, giving you the tools to plan for your financial commitments more effectively. Read more about how this formula works here today!

What is the formula for calculating small loan repayments?

The repayments for small loans available through Savvy, which are Medium Amount Credit Contract (MACC) loans, are calculated based on the following formula:

Loan amount + establishment fee x ((i x (1 + i)n) ÷ ((1 + i)n – 1)) = monthly repayment

  • i = interest rate divided by number of repayments
  • n = number of repayments

To break this down in a more approachable way and by using a real example, you can calculate the repayments on a $3,000 loan to be repaid over 12 months in monthly instalments (with a $400 establishment fee and 48% p.a. interest) as follows:

  • Loan amount + establishment fee = 3,400
  • Interest rate = 48% = 0.48
  • n = 12
  • i = 0.48 ÷ 12 = 0.04

From there, we can insert the numbers into the above formula. The two parts of the second half of the formula now look like this (rounded to three decimal places):

  • i x (1 + i)n = 0.04 x (1 + 0.04)12 = 0.064 (rounded to three decimal places)
  • (1 + i)n – 1 = (1 + 0.04)12 – 1 = 0.601 (rounded to three decimal places)

Once we have these two numbers, we can simplify the equation and calculate the monthly repayment as follows:

  • 3,400 x (0.064 ÷ 0.601) = $362.28

After you’ve calculated your monthly repayment, you can multiply it by the number of loan instalments you’re set to pay to reveal the loan’s total cost. In this case, we can multiply the above number by 12 to reveal that the total cost of the $3,000, 12-month loan is $4,347.33. This means that you’d pay $947.33 in interest over the 12 months of your small loan.

Do my repayments decrease as I pay off my loan?

No – your weekly, fortnightly or monthly repayment is fixed across your loan term, so it won’t go down as your debt decreases. However, because small loans are calculated on an amortisation scale, the interest charged per instalment is based on your outstanding loan amount, known as the principal, at the end of each week, fortnight or month. In practice, this results in the proportion of your loan payment going towards interest decreasing with each payment. This is demonstrated in the table below using the above loan as an example:

Month Interest Principal Loan balance
N/A
N/A
$3,400.00
1
$136.00
$226.28
$3,173.72
2
$126.95
$235.33
$2,938.39
3
$117.54
$244.74
$2,693.65
4
$107.75
$254.53
$2,439.12
5
$97.56
$264.71
$2,174.41
6
$86.98
$275.30
$1,899.11
7
$75.96
$286.31
$1,612.79
8
$64.51
$297.77
$1,315.03
9
$52.60
$309.68
$1,005.35
10
$40.21
$322.06
$683.29
11
$27.33
$334.95
$348.34
12
$13.93
$348.34
$0.00

Is this formula different from other loan repayment calculations?

While this formula is the same as a range of other loan types, such as personal loans, home loans and business loans, MACC loan repayments differ from those of Small Amount Credit Contract, or SACC, loans. These are loans of $2,000 or less and come with a different cost structure, which is:

  • Establishment fee: 20% of your loan amount
  • Monthly fee: 4% of your loan amount each month

Using this, you can calculate the costs using the following formulae:

  • Loan amount + (loan amount x 0.2) + ((loan amount x number of months) x 0.04) = total loan cost
  • Total loan cost ÷ number of repayments = repayment cost

We can calculate the cost of a $2,000 loan to be repaid over 12 months with fortnightly repayments using the above formula:

  • 2,000 + (2,000 x 0.2) + ((2,000 x 12) x 0.04)
  • 2,000 + 400 + 960 = $3,360 total cost
  • 3,360 ÷ 26 = $129.33 fortnightly repayments

More questions about calculating your small loan repayments

Can I pay off my small loan early?

Yes – small loans in Australia can be paid off ahead of schedule and come without any early repayment fees. Paying off your small loan early can save you on interest and contribute positively to your financial health.

How long can I take to repay my small loan?

You can choose to repay your loan over as few as 16 days up to as long as two years when you apply through Savvy. However, the term you’re approved for may ultimately depend on factors specific to your profile, such as your income and repayment history.

How much can I borrow with a small loan?

When you apply for a small loan through Savvy, you can choose to borrow between $2,050 and $5,000. However, like repayment terms, the amount you’re able to borrow will depend on how much you can comfortably afford to repay.

Will I have to pay more if I submit my payments late?

Yes – late payments typically result in additional fees. It's crucial to prioritise timely payments to avoid these extra costs and to protect your credit score from potential negative impacts associated with late payments. Check with your lender if you’re unsure when a late payment fee kicks in.

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Disclaimer:

The information on this website is of general nature and does not take into consideration your objectives, financial situation or needs.

For loans between $2,050 and $5,000, the APR is between 21.24% (minimum) and 48% (maximum) per annum. Comparison rate of 65.4962%. Minimum term is 16 days and maximum term is 24 months. The cost of the loan is a $400 establishment fee and monthly interest charged on the amount borrowed. For example, a loan of $3,000 over 3 months with an APR of 48%, (comparison rate of 65.4962%), will have an establishment fee of $400, monthly repayments of $1,225.20. Total repayments of $3,675.60 and total interest payment of $275.60.

Warning: A comparison rate indicates the true cost of a loan. Comparison rates are true only for the examples provided and may not include all fees and charges. Different terms, fees or loan amounts might result in a different comparison rate.