How Do You Calculate Interest Charged On The Principal Of A Loan?
Borrowing money isn’t necessarily a bad thing. Without mortgage and automobile loans, the average person wouldn’t be able to raise enough cash to buy a home or car outright. Anyone borrowing money should have a basic knowledge of financial calculations in order to understand just how the money they send each month eventually pays off their loans. One such example is for you to know how to calculate interest charged on the principal of a loan. Understand the idea of compound interest. Since most loans require monthly payments, lenders charge interest monthly, not once a year. This means that you pay one-twelfth of the annual interest rate each month. If your loan has an interest rate of 6 percent, you pay .5 percent per month on the outstanding balance, or principal. Calculate the monthly payment on your loan. Using a financial calculator (available online) or Excel, input the interest rate you expect divided by 12 (for monthly payments), the total number of payments to be made and the
