# How to Figure Interest on a Loan

Contents

- How to Figure Interest on a Loan
- Find the loan’s interest rate
- Convert the interest rate from an annual percentage rate to a decimal
- Determine the loan’s term in years
- Multiply the loan’s remaining balance by the decimal version of the interest rate
- Multiply the result by the number of years remaining on the loan
- How to Figure Interest on a Loan Payment
- How to Figure the Total Interest Paid on a Loan

How to Figure Interest on a Loan: The Definitive Guide

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## How to Figure Interest on a Loan

The amount of interest you pay on a loan is determined by the interest rate, which is the percentage of the loan amount that you pay to the lender. The interest rate is set by the lender, and may be fixed or variable. You can use an online calculator to figure out your loan interest, or you can use a simple formula.

## Find the loan’s interest rate

Before you can calculate the interest on a loan, you need to know the loan’s interest rate. The annual percentage rate (APR) is the percentage of the loan amount that you would pay in interest over a year; it includes any fees charged for the loan. The APR is usually higher than the interest rate because it takes into account any fees charged for the loan.

## Convert the interest rate from an annual percentage rate to a decimal

In order to calculate simple interest, you need to know the principal, which is the initial amount loaned or invested; the rate, which is the percentage of interest charged per unit of time; and the time, which is usually expressed in years. You also need to convert the interest rate from an annual percentage rate (APR) to a decimal.

Here’s how to do that:

First, divide the APR by 100. For example, if your APR is 5%, divide 5 by 100. That gives you 0.05.

Next, divide that result by 12 (the number of months in a year). So continuing with our 5% APR example, you’d get 0.004167 (0.05/12 = 0.004167).

Now you have the monthly decimal interest rate!

## Determine the loan’s term in years

The term of a loan is the length of time that you have to pay it back. For example, a 30-year loan has a term of 30 years. To calculate the amount of interest that will accrue on your loan, you will need to know its term in years.

## Multiply the loan’s remaining balance by the decimal version of the interest rate

Interest is what you pay for the use of somebody else’s money. When you take out a loan, the bank charges you interest on the money you borrowed. You don’t have to accept the interest rate that the bank offers you. You can shop around for a better rate, and if you find one, you can try to negotiate with your bank to get them to lower their rate.

The interest rate on a loan is usually a percentage of the principal, or the original amount of money borrowed. The interest accrues, or builds up, over time. The longer you take to repay the loan, the more interest will accrue and the higher your total payments will be.

You can use an online calculator to figure out your monthly payments and total interest paid, or you can do it by hand. To calculate interest on a loan by hand, you’ll need to know four things:

-the loan’s remaining balance

-the yearly interest rate

-the number of payments per year

-the total number of payments you will make

## Multiply the result by the number of years remaining on the loan

After you’ve determined the periodic interest rate for your loan, you can figure out the amount of interest you’ll pay over the life of the loan by multiplying the periodic rate times the total number of payments you’ll make on the loan. You can also multiply the periodic interest rate by The balance of your loan, multiplied by the number of years remaining on your loan.

## How to Figure Interest on a Loan Payment

If you have a loan and make payments, part of each payment goes to pay the loan’s interest while the rest goes to pay off the loan’s principal. The exact amount that goes to interest and principal each period depends on the loan’s interest rate, how frequently payments are made, and the loan’s remaining balance. In this article, we’ll show you how to figure out how much interest you’re paying each period and how that affects your principal balance.

### Find the loan’s interest rate

The interest rate is usually given as an annual percentage, so you need to convert it to a monthly rate by dividing it by 12. For example, if your loan’s annual interest rate is 10%, you would divide 10 by 12 to get 0.83%. If the result has more than two digits after the decimal point, round off to the nearest hundredth. In this case, you would round off 0.83% to 0.01%.

### Convert the interest rate from an annual percentage rate to a decimal

To calculate your monthly interest payment, you will need to convert the interest rate from an annual percentage rate to a decimal. You can do this by dividing the interest rate by 100. For example, if your interest rate is 7 percent, you would divide it by 100 to get 0.07.

### Determine the loan’s term in years

Before you can calculate your loan’s interest, you need to know the length of your loan term in years. A loan’s term can be anywhere from a few months to several decades. The average auto loan, for example, has a term of about four years, while a 30-year fixed mortgage has a term of 30 years.

To calculate your loan’s interest, you will need to know the following:

-The amount of money you borrowed (the Principal)

-The Annual Percentage Rate (APR) of your loan

-The length of your loan’s term in years

### Multiply the decimal version of the interest rate by the loan’s remaining balance

The easiest way to figure interest on a loan payment is to use a calculator or do the math by hand.

To calculate the interest on a loan payment by hand, you’ll need to know the loan’s remaining balance and the annual interest rate. Once you have that information, you can follow these steps:

1. Convert the interest rate from a percentage to a decimal. This simply involves moving the decimal point two places to the left. For example, if your interest rate is 5%, you would convert it to 0.05.

2. Multiply the decimal version of the interest rate by the loan’s remaining balance. Continuing with our example, if your remaining loan balance was $10,000, you would multiply 0.05 by 10,000 to get $500. This is the amount of interest that will be included in your next loan payment.

### Multiply the result by the number of years remaining on the loan

To calculate the interest on a loan, use the loan’s quarterly interest rate. (For simplicity’s sake, we’ll use an annual interest rate in this example.) Let’s say your loan has an annual interest rate of 9%, which you’ve been paying off for two years. You have 10 years remaining on the loan. In this case, multiply 0.09 by 10 to get 0.9. That’s the amount of interest expense that will be added to your principal balance each year for the next 10 years.

## How to Figure the Total Interest Paid on a Loan

The interest rate on a loan is the cost of borrowing money, and it is typically given as a percentage of the loan amount. The loan amount, plus any interest that has accrued, is known as the principal. To calculate the total interest you will pay on a loan, you need to know the interest rate, the loan term, and the loan amount.

### Find the loan’s interest rate

To calculate the amount of interest that you will pay on a loan, you will need to know the loan’s interest rate. The interest rate is the percentage of the loan that you will be charged for borrowing the money. You will also need to know how much money you borrowed (the loan’s principal) and how long you will be paying back the loan (the loan’s term).

Once you have all of this information, you can use an online calculator or do the math yourself to figure out how much interest you will end up paying.

Here is an example:

You take out a $5,000 loan with a 4% interest rate and a five-year term.

Each year, you will owe 4% of $5,000, or $200 in interest. Since there are five years in your loan term, you will end up paying $1,000 in total interest by the time your loan is paid off.

### Convert the interest rate from an annual percentage rate to a decimal

In order to calculate the total interest you will pay on a loan, you need to know the annual percentage rate (APR) and the original loan amount. The APR is the yearly cost of borrowing money, including interest and fees, expressed as a percentage.

To convert the APR to a decimal, divide by 100. For example, if your loan has an APR of 7%, divide 7 by 100 to get 0.07.

Next, multiply the decimal by the original loan amount to calculate the amount of interest you will pay over the life of the loan. For example, if you took out a $10,000 loan with an APR of 7% and repaid it over five years, you would multiply $10,000 by 0.07 to get $700 in interest — regardless of whether your interest is compounding over time.

### Determine the loan’s term in years

The easiest way to determine the term of a loan is to look at the loan’s amortization schedule. This schedule will list all of your loan payments, along with how much of each payment goes towards the principal and how much goes towards the interest. The final payment listed will be your last loan payment.

If you don’t have an amortization schedule, you can still determine your loan’s term by looking at your loan agreement or contacting your lender.

Once you know the term of your loan, you can start to figure out the total interest paid.

### Multiply the decimal version of the interest rate by the loan’s remaining balance

Interest is what you pay for the privilege of borrowing money, whether it’s for a personal loan, mortgage, auto loan, or credit card balance. Many lenders calculate interest daily. That means every day your balance is multiplied by a daily rate, called a periodic rate, to calculate the interest for that day. For example, let’s say you have a credit card with an annual percentage rate (APR) of 15%. Your periodic rate would be .04109% (15% ÷ 365 days). If your balance was $2,000, your daily interest charge would be $0.84 ($2,000 x .0004109).

##Method One

To determine the total amount of interest paid on a loan over time, you’ll need to know the loan’s interest rate and the amount of time you’ll be making payments. Once you have this information, follow these steps:

1. Convert the interest rate to a decimal by removing the percent sign and dividing by 100, then multiply by the number of years you’ll be making payments (this is called the term of the loan). For example, if you’re making monthly payments on a 5-year loan with an annual percentage rate (APR) of 10%, you would multiply .10 by 5 to get .5.

2. Add 1 to this number; in our example above it would be 1.5 (.5 + 1 = 1.5).

3. Raise this number to a power equal to the number of periods in one year; in our example above there are 12 monthly payments in one year so we’d raise 1.5 to the 12th power (1.5^12=3.38). For loans with weekly payments there are 52 weeks in one year so we’d raise 1.5 to that power instead (1.5^52=44.72).

4- Multiply this result by the original loan amount; using our same example above with a $20,000 loan and 10% APR we’d have 20,000 x 3.38 = 67,600 which we could round off to $68,000 (20K x 44.72 = 89440 rounded off to 90K for weekly payments). This is how much total interest you will pay on this particular loan over its entire lifetime assuming no changes in Fleming said that if we make extra payments towards outstanding principal (the part of each payment not applied towards accrued interest), “That will save us money on total interest paid because we will reduce both the length and size of future regular periodic payments which are based upon — and increase proportionately with — the unpaid principal balance.”

##Method Two: The Amortization Formula

Here’s another way to calculate total interest paid that doesn’t require as many steps as Method One but it does require that you have an amortization schedule for your loan An amortization schedule shows how much principal andinterest are paid at different points during a loan’s lifetime; most lenders provide them when they give you your loan paperwork Once you have your amortization schedule in hand:

1- Find your original loan amount listed at the bottom of column two labeled “Ending Balance.” This is how much principal remains unpaid at the beginning 2-of each period listed across row one labeled “Payment Number” or “Period Number.” In our sample schedule below that amount is $100,000 because it’s still outstanding after payment number one has been made 3-Add together all of column four labeled “Interest Charged” from top to bottom until reaching your original loan amount again in row 180; this should give you your total paid 4-interest over time which should equal $66,288 given our sample data from Method One above ($66 thousand rounded off)

### Multiply the result by the number of years remaining on the loan

To calculate the total amount of interest you will pay on a loan, you will need to multiply the result of your interest calculation by the number of years remaining on the loan. For example, if you are paying 5% interest on a $10,000 loan and you have four years remaining on the loan, your total interest paid will be $2,000 ($10,000 x 0.05 x 4).