Result
- The final amount with simple interest is: The final amount with compound interest is:
Interest Calculator
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BS César Delgado
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Usage Instructions for the Calculator
Table of Contents
To use this tool, start by entering the initial amount, which is the amount of money you are going to borrow.
In the second box, include the time period for which you requested the loan, whether it is 1, 2, 10, or 20 years.
In the last box, indicate the annual rate that the financial entity will apply to the granted loan, click on “Calculate interest” and the calculator will give you the result.
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To calculate compound interest, click on Interest Type: “Compound” and complete the 3 additional fields.
In this type of calculations, it is essential to understand well the details of the loan in question because they have a crucial influence on the result.
If you want to know more about what they are, what types exist, and how they can be calculated, keep reading.
What are interests
Interest is the value that we add to a loan or a deposit that must be paid.
To perform the interest calculation, it is necessary that you know what type of loan you have and what are the rules imposed by the lender.
For example, credit cards charge you interest every day although they normally have a monthly period, if the amount is owed due to an overdraft in the account.
Lenders can offer loans with variable interest rates and diverse periodicity, for example, monthly or annually.
Most lenders tend to set annual rates, but it may be that you have taken out a loan whose interests expire monthly, if this is your case, to convert the annual interest rate into monthly you must divide it by 12.
Types of interest
Before continuing with the calculation, it is important that you know how to distinguish between the existing types of interest. The most used are fundamentally two: simple and compound.
Simple interests
It is the simplest calculation and is generally used for short-term loans.
The capital tends to remain constant over the years and therefore the interest rate never increases.
An example would be a loan of €1,000 with a 5% annual interest rate.
Compound interests
In this case, the interest will be calculated periodically and added again to the principal amount.
In some loans, this may occur once a year, while in others it may happen every month or quarter. You will need to know how many times a year the interest will become compound.
If for example you take out a loan with a capital of €1,000 and an annual interest of 10%, at the end of the first year you would have to return €1,100.
However, at the end of the second year the amount of €1,100 would receive an additional 10% interest reaching up to €1,210, and so on.
How to manually calculate the interest
The amortization table
For the most common loans, which are usually those requested for a house, a car, or studies, the most effective way is to build an amortization table.
This table will detail all payments, monthly interest, and capital amounts, as well as the remaining loan balance at any given time.
But to build your amortization table you will need to note certain data:
- The type of interest, whether it is simple or compound.
- The period of time the loan lasts.
- The monthly payment, if there is one.
- And the initial amount on which you are paying these interests.
Once you have this data you can proceed to apply the relevant formula.
Simple interest formula
If your loan expires with simple interest, you requested it for the amount of €100, it has a duration of one year and an annual interest rate of 6% the formula you must apply is:
- Interest = Principal Amount x Interest Rate x Time in years; €100 x 0.06 x 1 = €6
- Total amount = Initial Amount + Interest; €100 + €6 = €106
Compound interest formula
Most loans are not so simple to calculate. It is likely that you have loans whose term expires in several years, and it is also possible that over these years your debt will grow.
This means that it is a compound loan, it is a bit more complex to calculate, but don't worry because we are going to explain how to do it.
We continue with the same figures as above: a loan of €100 with an annual interest of 2%, but this time instead of for one year it will be for three.
We will have to perform more than one operation.
The first operation is practically identical to the previous one:
- Interest = Principal x Interest Rate; €100 x 0.06 = €6
- Total amount = Initial Amount + Interest; €100 + €6 = €106
But when it comes to calculating the second year, things change:
- Year 2 Interest = Total amount year 1 + (Total amount year 1 x Interest Rate)
- Total amount to pay year 2 = €106 + (€106 x 0.06) = €112.36
The third year has a formula quite similar to the one we used for year 2:
- Year 3 Interest = Total amount year 2 + (Total amount year 2 x Interest Rate)
- Total amount to pay year 3 = €112.36 + (€112.36 x 0.06) = €119.10
Once you have learned all these formulas to manually calculate the interest, if you want you can also export them to an Excel playing with the columns, and thus semi-automate the process, so that you can share it with your clients or friends, it all will depend on the use you must give it.
In today's article, you have learned how to use the online interest calculator to know the total amount to pay of your loan in an automated way, and, in addition, we have taught you how to do it step by step and with all possible variables, whether it is of simple type or compound type.
We hope to have been useful to you. If you have reached this point with a good taste in your mouth, do not forget to share this tool on your social networks, that way your contacts can also get to know this community.
