# How interest is calculated (a worked example)

*Source: https://credicorp.co.uk/support/how-interest-is-calculated-worked-example/*

One of the most common questions we get from active borrowers is simply: how is the interest worked out? The good news is that it is straightforward. We charge **simple interest** on what you borrow, not compound interest, and every figure that applies to your own loan is set out in advance on your Key Information Sheet (KIS) and in your Business Loan Agreement. This article walks through the method with an illustrative example so you can follow the logic.

## Simple interest, not compound

Compound interest charges you interest on interest — the balance grows on itself over time. We do not do that. With simple interest, the charge is based on the original amount you borrowed (the principal) over the agreed term. Because our loans are short — between 14 and 84 days — and because the figures are fixed up front, you know the **total amount payable** and the **total cost of credit** before you ever sign. There are no surprises layered on later.

## A worked example (illustrative only)

To show the shape of the maths, suppose a company borrows **£200** over a short term and the simple interest charge for that term came to, say, £20. The total amount payable would be the principal plus the interest: £200 + £20 = **£220**. If repayments were fortnightly across the term, you would divide that £220 across the agreed number of instalments. That is the whole method: principal, plus a fixed interest charge, repaid on a schedule.

**This is an illustration, not a quote — your figures are on your KIS.** The £200 and the £20 above are made-up round numbers chosen only to make the arithmetic clear. They are not Credicorp’s price and they are not an offer. The amount you borrow, your term, your interest charge and your exact instalments are personal to your loan and appear on your own Key Information Sheet.

## Why we don’t lead with an APR

You will not see us headline a consumer-style **APR** figure. APR is an annualised percentage designed mainly for long-running consumer credit; stretching it across a loan that may last only a few weeks can distort the picture and make a short, transparent cost look stranger than it is. Instead we show you the things that actually tell you what the loan costs: the amount borrowed, the term, the total amount payable, the total cost of credit, a **simple annualised rate** for comparison, and the full repayment schedule. We explain the reasoning more fully in [daily interest vs APR](/support/daily-interest-vs-apr/).

## Reading it on your own documents

The single most reliable way to know your interest is to read your KIS. It lays out, in plain English, every number that applies to you — so you are never guessing from a general example like the one above. If you are not sure which line is which, our guide to [how to read a Key Information Sheet](/support/how-to-read-a-key-information-sheet/) takes you through it field by field.

A few practical points worth knowing:

- The interest is calculated on the amount you actually draw down, over your actual term.

- Because it is simple interest, repaying early generally reduces what you pay — there is no compounding to unwind, and we charge no early-repayment fee.

- Your instalments are fixed and shown on the schedule, so you can plan cash flow precisely.

If your real figures ever look different from what you expected, do not work from a generic example — open your KIS, or sign in to your portal, and check the actual numbers. And if anything still does not add up, contact us and we will talk it through.

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Credicorp Limited — UK lender to limited companies (Company No. 16093826). credicorp.co.uk