£100 Short-Term Loan over 6 months: what it costs each month

What a £100 short-term loan over 6 months costs at different rates

The rate you are offered depends on your credit score, your income and how much you borrow. The same £100 over 6 months can cost very different amounts, so it is worth seeing the whole range before you apply.

Moving the rate by one percentage point, from 29.9% to 30.9%, changes the monthly payment by about £0.04 and the total interest by about £0.

The formula behind the payment

The payment on a fixed-rate loan is: amount × monthly rate ÷ (1 − (1 + monthly rate)^−months). For £100 over 6 months at 29.9% APR the monthly rate is 2.2039%, which gives £17.98. Multiplying by 6 months gives £108 repaid in total, so the cost of borrowing is £8.

Should you borrow £100 over 6 months or a different term?

A longer term lowers the monthly payment but you pay interest for longer. At 29.9% APR, repaying £100 over 3 months costs £34.81 a month and £4 in interest, while 1 year costs £9.57 a month and £15 in interest. That is £10 more for the lower payment.

Interest versus capital: where your payments go

Early payments are mostly interest. In year 1 of this £100 loan, £8 of your £108 goes on interest and £100 reduces what you owe. By the last year the split reverses, which is why paying off a loan early saves more in the early years than the later ones.

What happens if you overpay your £100 loan?

Paying a little extra each month cuts the balance faster, so less interest is charged. Check that your lender allows overpayments and whether there is a charge: many allow up to a set amount a year without one.

How to work out if the payment is affordable

A common check is to keep all debt repayments, including this short-term loan, below about a third of your take-home pay. A £17.98 payment fits that guide if your monthly take-home pay is at least £54.

Also look at what happens if your income drops. Choose a payment you could still make for several months without borrowing again.

UK rules worth knowing before you borrow

• Use an eligibility checker first. A "soft search" shows likely offers without leaving a mark on your credit file, while a full application leaves a hard search.
• The advertised "representative APR" only has to be offered to at least half of the people who are accepted, so your own rate can be higher.
• You have a right to repay a loan early. The lender can charge a limited amount of interest for doing so, so check the early repayment terms.
• Free, impartial help with debts is available from MoneyHelper, Citizens Advice, StepChange and PayPlan.

High-cost short-term credit: the rules

• Credit unions in England, Scotland and Wales can charge no more than 3% a month, which is 42.6% APR.
• For high-cost short-term credit (payday-style loans) the FCA caps daily interest and fees at 0.8% of the amount borrowed, default fees at £15, and the total cost at 100% of the amount borrowed.
• Compare a credit union loan, an arranged overdraft, a 0% credit card or help from your local council before you take a high-cost loan.
• If you are struggling to repay, speak to the lender early and get free help from StepChange, PayPlan or Citizens Advice.

Ways to pay less interest

• Pick the shortest term whose monthly payment you can comfortably afford. Going from 1 year to 3 months would save £10 on this loan.
• Improve your credit file before you apply: register on the electoral roll, correct errors and pay existing bills on time.
• Make extra payments when you can, as long as there is no penalty. Each extra payment cuts the balance that interest is charged on.
• Borrow only what you need: every extra £1,000 at 29.9% over 6 months adds about £179.76 to the monthly payment.