# How to calculate interest on a loan | Interest Loan | Amortized Loan

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## How to calculate interest on a loan

How to calculate interest on a loan? Before this question, you must know why a bank charges interest? To get an idea about loan interest you need to go through the article.

When we take loans from banks or any lender, Then you need to return more money than you have taken from the bank. Actually, the banks charge some percentage of money as an interest

This Interest percentage could be anything that you have signed an agreement with the bank. The interest rate will be charged in the total amount of the loan for a particular time.

#### Why a bank or lender charges interest?

The banks and lenders charge interest because it is a source of revenue for them and also they are providing you the banking services and also take risks when providing someone loan.

However, the banks charge interest for their revenue but you should also need to calculate the total repayable amount and the interest which is the bank’s charges to you. Interest totally depends on your loan interest rate, principal loan amount, and tenure of your loan.

To earn maximum profit banks might offer you different schemes and also will approach.

So, before taking a loan, calculate your interest amount.

Now, coming to the main point that how to calculate interest on a loan?

Calculating interest is simple but it will be tougher when you add some type of loan interest and it will be required big calculations.

#### How to calculate interest on a loan

The main formula for calculating interest is as follows:-

Interest amount = Principal loan amount x {Interest rate ÷ 100 (in %)} x Time (in years)

You can also symbolize as R = P x I÷100 x T

Where R = Total Interest rate

P = Principal amount

I = Interest rate

And T = Time.

E.g. Total amount borrowed \$10,000 with 10% interest rate for 2 years

Then, P = 10,000

I = 10

T = 2

R (Interest rate) = 10,000x{10÷100}x2

=10,000×0.10×2

= 2,000

So, The interest will be \$2,000

Also check Car Loan EMI Calculator

#### Identify loan type

The above-mentioned interest is simple but many banks charge interest which is more complicated. You need to figure it your loan interest type whether it is only an interest loan or an amortized load.

Amortized Loan: It is a type of loan where it requires regular monthly payments. A part of the amount every month which you have paid for the loan installments goes toward the principal of the loan and another portion of the amount goes to interest.

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When a loan is based on interest only then the above formula of interest will be helpful but when it comes to amortized loans, then the initial installments interest rate will be higher and a little part of your installment will go toward the principal amount of your loan. How Personal Loans Affect Your Credit Score?

At the end of your loan tenure, your bank or lender will decrease your interest rate and the more money will pay will add toward your principal amount.

#### How to calculate interest on a loan of an amortized loans?

To calculate your amortized loans you need to follow the below steps:

1. Divide your interest rate by the no of installments which you will pay this year. In short “(Interest rate÷100)÷No of installment current year).

e.g. Assume that your interest rate is 3% and you will pay a total of 12 installments this year then the calculation will be (3÷100)÷12=0.0025

2. And multiply the above result with the remaining loan balance.

e.g. Also assume that you \$10,000 remaining loan balance then 0.0025×10000=25.

\$25 will be your interest amount.

Home loan, personal loan, auto loan etc kinds of loans are amortized loan.

Amortized loan example:-

Principal Loan Amount: \$200,000

Interest Rate: 8%

Loan Tenure: 3 years

#### Payment schedule & interest rate amortizes will be:

Number of Payments: 36

Monthly fixed Principal & Interest: \$6,267

Total Payments: \$225,622

The main topic covered “How to calculate interest on a loan

## Co Operative bank home loan emi calculator

Co Operative bank home loan emi calculator will help you find the EMI plan of your loan. EMI calculator will calculate your loan on the basis of your tenure, loan interest & principal loan amount.

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