How to Calculate Interest Payments
Input your loan information into an online calculator to quickly determine your interest payments., Find out your interest rate before getting a loan., Ask about accrual rates to determine when you get charged interest., Use longer term loans to pay...
Step-by-Step Guide
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Step 1: Input your loan information into an online calculator to quickly determine your interest payments.
Calculating interest payments is not a simple equation.
Luckily, a quick search for "interest payment calculator" makes it easy to find your payment amounts as long as you know what to input into the calculator:
Principal:
The amount of your loan.
If you loan is $5,000, the principal is $5,000.
Interest:
In simple terms, the percentage of money you're being charged to have the loan.
It is either given as a percentage (such as 4%) or a decimal (.04).
Term:
Usually in months, this is how long you have to pay the loan off.
For mortgages it is often calculated in years.
Payment Option:
Almost always a "fixed-term loan." However this can be different for specialty loans.
Ask if the interest and payment schedule is fixed before getting a loan if you are unsure. -
Step 2: Find out your interest rate before getting a loan.
The interest rate is the cost you pay for borrowing money.
It is the rate of interest that you will pay on the principal for the life of the loan.
You want it to be as low as possible, as even .5% of a difference can mean a huge sum of money.If you would prefer lower payments, you may pay a higher interest rate and more total interest over the loan, but less each month.
Someone with less savings on hand or whose income is bonus or commission-based would likely prefer this option.
However, want to stay below 10% interest whenever possible.
The common rates for different loans are:
Auto: 4-7% Home: 3-6% Personal Loans: 5-9% Credit Cards: 18-22% This is why you should avoid large purchases you can't repay quickly on credit cards.
Payday Loans: 350-500% These loans are very dangerous if you can't pay them off within 1-2 weeks., In technical terms, the accrual rate tells you how often lender calculates the interest you owe.
The more frequently you're charged the more you owe, since you have less time to pay off and the bill and prevent higher interest.Look, for example, at a $100,000 loan with 4% interest, compounded three different ways:
Yearly: $110,412.17 Monthly: $110,512.24 Daily: $110,521.28 , The term is the period of time that you have to repay the loan.Again, this will vary from one loan to the next, and you'll need to choose a loan with a term that meets your needs.
A longer term will typically result in more interest paid over the life the loan, but smaller monthly payments.For example, say you have a $20,000 auto loan with 5% interest.
Total payment would be: 24 Month Term:
You pay $1,058.27 in total interest, but only $877.43 each month. 30 Month Term:
You pay $1,317.63 in total interest, but only $710.59 each month. 36 Month Term:
You pay $1,579.02 in total interest, but only $599.42 each month. -
Step 3: Ask about accrual rates to determine when you get charged interest.
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Step 4: Use longer term loans to pay less each month
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Step 5: but more overall.
Detailed Guide
Calculating interest payments is not a simple equation.
Luckily, a quick search for "interest payment calculator" makes it easy to find your payment amounts as long as you know what to input into the calculator:
Principal:
The amount of your loan.
If you loan is $5,000, the principal is $5,000.
Interest:
In simple terms, the percentage of money you're being charged to have the loan.
It is either given as a percentage (such as 4%) or a decimal (.04).
Term:
Usually in months, this is how long you have to pay the loan off.
For mortgages it is often calculated in years.
Payment Option:
Almost always a "fixed-term loan." However this can be different for specialty loans.
Ask if the interest and payment schedule is fixed before getting a loan if you are unsure.
The interest rate is the cost you pay for borrowing money.
It is the rate of interest that you will pay on the principal for the life of the loan.
You want it to be as low as possible, as even .5% of a difference can mean a huge sum of money.If you would prefer lower payments, you may pay a higher interest rate and more total interest over the loan, but less each month.
Someone with less savings on hand or whose income is bonus or commission-based would likely prefer this option.
However, want to stay below 10% interest whenever possible.
The common rates for different loans are:
Auto: 4-7% Home: 3-6% Personal Loans: 5-9% Credit Cards: 18-22% This is why you should avoid large purchases you can't repay quickly on credit cards.
Payday Loans: 350-500% These loans are very dangerous if you can't pay them off within 1-2 weeks., In technical terms, the accrual rate tells you how often lender calculates the interest you owe.
The more frequently you're charged the more you owe, since you have less time to pay off and the bill and prevent higher interest.Look, for example, at a $100,000 loan with 4% interest, compounded three different ways:
Yearly: $110,412.17 Monthly: $110,512.24 Daily: $110,521.28 , The term is the period of time that you have to repay the loan.Again, this will vary from one loan to the next, and you'll need to choose a loan with a term that meets your needs.
A longer term will typically result in more interest paid over the life the loan, but smaller monthly payments.For example, say you have a $20,000 auto loan with 5% interest.
Total payment would be: 24 Month Term:
You pay $1,058.27 in total interest, but only $877.43 each month. 30 Month Term:
You pay $1,317.63 in total interest, but only $710.59 each month. 36 Month Term:
You pay $1,579.02 in total interest, but only $599.42 each month.
About the Author
Elizabeth Wells
Experienced content creator specializing in home improvement guides and tutorials.
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