Millions of borrowers rely on payday loans or other short-term credit products with interest rates that can exceed 300% APR. Community microloan programs offer an alternative. By providing small loans at far lower interest rates, these programs help borrowers avoid the spiraling costs that come with predatory lending.
Use this calculator to compare the interest you might pay on a traditional high-rate loan with the interest charged by a microloan provider. The difference can be eye-opening, especially over a term of several months. With the right financing, you can save money and build a healthier credit history.
The formula assumes simple interest on both loans. Interest for a given loan is computed as:
Here, is the principal, the annual percentage rate, and the loan length in months. Savings are simply the difference between the interest charged at the original rate and the microloan rate:
Even a reduction of 20 percentage points can lead to substantial savings over a six-month loan. Because microloans often come with flexible payment schedules and supportive resources, borrowers are less likely to fall behind. This helps communities thrive, as money stays local and cycles back into small businesses rather than leaving in the form of high interest.
| Loan Type | APR | Interest on $1,000 over 6 mo. |
|---|---|---|
| Payday Loan | 300% | $1,500 |
| Microloan | 15% | $75 |
The difference is dramatic. With high-rate payday loans, borrowers may end up owing many times the original amount. Microloans, on the other hand, provide manageable repayment schedules.
Avoiding excessive interest charges frees up cash for emergencies and savings. Local nonprofit lenders and credit unions often provide financial education alongside loans, helping borrowers build credit scores. By using the calculator above, you can quickly see how microloans put more money back into your pocket.
Microloans are a lifeline for entrepreneurs and families who need a small amount of capital without the harsh terms of predatory loans. Input your numbers to discover how much you could save in interest and start planning for a more secure financial future.
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