Loan Interest Calculating: Optional or Essential Step?

Spread the love
calculate interest paid on a loan
Picture source: Pixabay

Asking yourself a question ‘how to calculate interest on a loan?’ is a right step before taking the decision to borrow. To help you manage the issue, we’ve gathered some tips.

Let us start with the fact that there are a lot of opportunities to know what your rate is. Do not believe that it is a complicated or impossible action. Before answering the question on how to calculate interest rate on a loan, we would like to tell you what the interest is.

What is this about? The interest and the principal.

No matter what type of loan you apply for, you will have to repay the loaned sum and the interest over it. In other words, you should pay back the money you borrow. Thus, the lender has a profit. That is why your regular payments are divided into two parts – to repay a loan sum and to cover the interest.

However, not only this point is crucial. Knowing how to calculate interest and principal payments on a loan will help you manage your budget during the loan term or to boost your savings.

Principal payment is specifically the loaned amount of money. It is necessary to determine how much funds you need to borrow and realize how much you will be able to pay back. That is why you should think twice and explore into your budget. Especially it matters if you wait for numerous changes.

After realizing what sum you will be able to pay back, it is time to learn how to calculate simple interest on a loan. The longer the term is, the lower the payments are, and the higher the interest is. Remember this formula when deciding to take out a loan.

The common formula rule

To know exactly, you better turn to the ‘How to calculate total interest paid on a loan’ formula. For example, you want to take $200 at 4% interest per year. The principal is multiplied by rate and by time – 200 * .04 * 1 = 8. The simple interest rate is $8 per year.

Besides calculating a loan manually and with online calculators, there is one more option. Do you want to know how to calculate interest on a loan in excel? Read the next passage.

Other means of calculating an interest

You can use Excel in the following way:  create one table and fulfill the calculations line by line. All the calculations can be done in one cell, and thus, you get the final figure.

Picture source: Pixabay

In fact, if you have already worked with this software, it will not be a struggle unlike calculating how much money to set aside for taxes if you are a self-employed Canadian.

The “car loan” concern

More than 200,000 of new vehicles were sold in the 2016 year in Canada, and this figure continues growing. The demand for car loans as well as the bad credit loans Canada increases accordingly. And the question ‘how to calculate interest on a car loan’ becomes more popular. Let us figure it out. But! We would like to renew the rule – take care about the amount of loan. Judge carefully if the monthly payment fits your budget.

Well, maybe the easiest way is turning to online calculators. There is a number of them. All you need is to mention the loan term, amount, and interest rate.
If you do not trust such an assistant, we propose you a ‘how to calculate interest on a car loan’ formula. This is how to calculate interest on a car loan manually: Interest Rate/100 * Loan Amount * Term (years). For example, you apply for the loan of 60,000 at 5% rate to be paid over 6 years. 5/100 * 60,000 * 6 = 18.

This formula is the simplest one. You may search for more, or, again, use the online calculators or tables. Compare the conditions of different lenders and choose the one type of car loan, that is the most appropriate for you and your accounts. The question ‘how to calculate interest rate on a car loan’ is resolved. It is usually as simple as any other type of loan.

Extra tips

Besides knowing how to calculate monthly interest on a loan, you should also remember some points.

1. Schedule. We hope that everyone knows the payments must be made regularly. But it is not all. When applying for the loan, you will choose how often to make the payments: weekly or monthly, etc. More often you return the cash – the less interest amount you pay. However, make sure if you are ready to execute large payments frequently without any harm to your normal life.

2. Amount. It was already mentioned that the sum of money for repayment is intended to cover both principal and interest. The interest is paid first.

3. You should be careful with different types of loans as the terms, APR and maximum total amount might be different. For example, when you take extra-money from your credit card, you may also ask Google how to calculate interest paid on a loan. But it might be not as simple. Almost every credit card establishes an Annual Percentage Rate. But in fact, they impose the interest tax every day. Thus, you may be forced to pay the higher sum than you expected.

As the conclusion

Why do you need the calculation of the interest? Such a step is very significant for people who tend to manage their budget carefully. But it is crucial for those, who are not able to control each financial action.
It is rather quick and simple to find out how to calculate interest on a loan. But, you should do it accurately, if you are going to rely on your own calculations.

Leave a Reply

Your email address will not be published. Required fields are marked *