Calculate Interest On Loan Over Time

Loan Interest Formula:

\[ Interest = P \times r \times t \]

Where:

\( P \) = Principal amount (initial loan balance)
\( r \) = Annual interest rate (decimal)
\( t \) = Time period in years

Principal Amount:

Annual Interest Rate:

Time Period:

Compounding Frequency:

Total Interest:

Total Amount (Principal + Interest):

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1. What is Loan Interest?

Loan interest is the cost of borrowing money, typically expressed as a percentage of the principal loan amount. Lenders charge interest as compensation for the risk they take and the opportunity cost of lending their money.

2. How Does the Calculator Work?

The calculator uses different formulas depending on the interest type:

Simple Interest:

\[ I = P \times r \times t \]

Compound Interest:

\[ A = P \times \left(1 + \frac{r}{n}\right)^{n \times t} \] \[ I = A - P \]

Where:

\( I \) — Total interest
\( P \) — Principal amount (initial loan balance)
\( r \) — Annual interest rate (decimal)
\( t \) — Time period in years
\( n \) — Number of compounding periods per year
\( A \) — Total amount (principal + interest)

3. Simple vs Compound Interest

Simple Interest: Calculated only on the original principal amount. Common for short-term loans and some personal loans.

Compound Interest: Calculated on the initial principal and also on the accumulated interest of previous periods. Common for mortgages, credit cards, and most long-term loans.

4. Using the Calculator

Tips: Enter the principal amount, annual interest rate, and time period. Select the appropriate time unit (years, months, or days) and compounding frequency. All values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: What's the difference between APR and interest rate?
A: The interest rate is the cost of borrowing the principal, while APR (Annual Percentage Rate) includes the interest rate plus other loan fees.

Q2: How does compounding frequency affect interest?
A: More frequent compounding results in higher total interest because interest is calculated on previously accumulated interest more often.

Q3: What's amortization?
A: The process of paying off a loan with regular payments over time, where each payment covers both interest and principal.

Q4: Why do loans have different compounding periods?
A: Different loans use different compounding schedules based on the lender's policies and the type of loan.

Q5: How can I reduce the interest I pay on a loan?
A: You can reduce total interest by making extra payments, choosing a shorter loan term, or negotiating a lower interest rate.