How To Calculate Bank Loan Interest Rate Formula

Divide the annual interest rate by 12 and call this new number capital r for example if you have a 6 rate then r 06 12 005. In the example shown the formula in c10 is. For example if you borrow 1 000 from a bank for 120 days and the interest rate remains at 6 the effective annual interest rate is much higher.

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For the above calculation you have 4 500 00 to invest or borrow with a rate of 9 5 percent for a six year period of time.

How to calculate bank loan interest rate formula. Convert the annual rate to a monthly rate by dividing by 12 6 annually divided by 12 months results in a 0 5 monthly rate. Figure the monthly interest by multiplying the monthly rate by the loan balance at the start of the month 100 000. For a quarterly rate divide the annual rate by four. For the example here 1 004167 12 means 1 004167 raised to the power of 12.

Multiply the number of years by 12 the find the number of months in the loan period and call this number capital y for example if you have a 30 year mortgage y 360. Principal loan amount x interest rate x time aka number of years in term interest so if you take out a five year loan for 20 000 and your interest rate is 5 percent the simple interest. For a weekly rate divide the annual rate by 52. Loans have four primary components.

Alternative loan payment formula the payment on a loan can also be calculated by dividing the original loan amount pv by the present value interest factor of an annuity based on the term and interest rate of the loan. When you know the principal amount the rate and the time the amount of interestcan be calculated by using the formula. Effective rate interest principal x days in the year 360 days loan is outstanding. The caret symbol represents an exponential equation which means a number is raised to the power of another.

For a daily interest rate divide the annual rate by 360 or 365 depending on your bank. You can use the same interest rate calculation concept with other time periods. The amount the interest rate the number of periodic payments the loan term and a payment amount per period. This formula is conceptually the same with only the pvifa replacing the variables in the formula that pvifa is comprised of.

Rate c7 c6 c5 12. Use this formula for compound interest to calculate the ending amount after a year a. Calculate the monthly payment. One use of the rate function is to calculate the periodic interest rate when the amount number of payment periods and payment amount are known.