Using an Annualized Interest Rate - a 25% for 6 Weeks example
If you’re a lender offering short-term loans, you’ve probably dealt with Flat Interest Loans that run for just a few weeks.
Let’s say you want to create a loan product that charges a 25% flat interest rate for 6 weeks; how do you configure it correctly for your client?
Here’s a quick guide 👇
Step 1: Convert 6 Weeks into a Year Fraction
There are 52 weeks in a year.
To find out how many 6-week periods fit into one year:
ℹ
Number of 6-week periods in a year = 52.2/6 ≈ 8.70 This means that a 6-week loan can, in theory, repeat about 8.70 times per year.
Step 2: Calculate the Simple Annualized Rate
If the loan is not compounded (i.e., interest isn’t charged on previous interest), we can scale it linearly:
💡
Annual interest rate = 25% × 8.70 = 217.50% So, the simple annualized interest rate for a loan at 25% over 6 weeks is 217.50% per year.
See the two Examples Below
Add a new Loan Product in your Cladfy Microlender dashboard with the sample format below:
| Field | Example Input |
| Loan Name | Duka Loan (6 Weeks) |
| Interest Type | Flat |
| Interest Rate | 25% |
| *Annual Interest Rate | 217.50% |
| Interest Period | 6 Weeks |
| Compounding | None (for flat rate loans) |
| Loan Term Options | 6 Weeks |
| Status | Active |
Once you save the product, Microlender automatically applies the correct interest calculations, repayment schedule, and reporting metrics.
Why This Matters
This understanding is critical for:
Lenders, to maintain transparency and accurate reporting.
Borrowers, to make informed financial decisions.
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