Monthly Interest Formula:
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Monthly loan interest is the amount charged each month for borrowing money, calculated based on the current loan balance and annual interest rate. It represents the cost of borrowing for that month.
The calculator uses the monthly interest formula:
Where:
Explanation: The annual rate is divided by 12 to get the monthly rate, then multiplied by the balance to get the monthly interest amount.
Details: Understanding monthly interest helps borrowers know how much of their payment goes toward interest vs. principal, plan repayments, and compare loan options.
Tips: Enter the current loan balance and annual interest rate (as percentage). Both values must be positive numbers.
Q1: Is this the same as amortization?
A: No, this calculates simple monthly interest. Amortization shows how payments are split between principal and interest over the loan term.
Q2: Does this work for credit cards?
A: Yes, but credit cards often use daily interest calculations, so this provides an estimate.
Q3: What if my rate changes?
A: For variable-rate loans, recalculate whenever the rate changes to get accurate results.
Q4: Why divide by 12?
A: This converts the annual rate to a monthly rate since there are 12 months in a year.
Q5: How does extra payment affect interest?
A: Extra payments reduce the principal balance, which decreases future interest calculations.