calculate interest rate on a personal loan

Easy Steps To Calculate Interest Rate On A Personal Loan

You need to pay back the fund over a stipulated period whenever you borrow money. You need to pay back interest along with the money. To make maximum profit, a lender will have different approaches when it is time for them to charge interest. 

Calculating the loan can be quite difficult and requires several steps. Some of the processes of calculating the interest rate so that you can take up the lowest interest rate personal loan are given below:

Simple interest

It is one of the methods of calculating the rate of interest. It is easier than the other methods. To calculate, one needs to gather information related to the principal amount, total tenor, and interest rate.

Formula: SI = P*R*T/100

Here “P” refers to the principal amount, and r refers to the interest rate. At the same time, t is the tenor or the total time required to pay back the loan.

Compound interest

Before taking a loan amount, the borrower should check the simple loan eligibility criteria. It can help them to take up the loan without using any burden. With the help of the compound interest formula, one can also check the interest rate.

Formula: A= p(1+r/n)nt

Amortizing interest formula

Some lenders charge interest based on the amortization schedule. Though the monthly payment of advertising interest remains fixed, the borrowers need to pay the loan amount in equal instalments. With such a loan, the initial payments become interest-heavy. But with each passing month, the amount of interest decreases.

Formula: (Interest rate/number of payments of that year)*Remaining balance.

These are ways one can easily calculate the rate of interest on online personal loans.

Read Also: Four Things To Know While Availing Of A Used Car Loan

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