A personal loan is one extended to a borrower without the need for security or collateral such as a car or house. These types of loans are also called signature loans. A borrower only needs to sign the loan documents to receive it once approved. You can calculate the interest of a personal loan if you have the terms and details. A high interest rate means that more interest will accrue over the life of the loan.
Write the terms and conditions of your personal loan. You will need the balance, the interest rate and the monthly payment. If you have a personal loan of $ 1500 with an interest rate of 8%, a monthly payment of $ 67.84 for a period of 24 months, the interest can be calculated using a formula.
Take the 8% interest rate and divide it by 360 (the number of days in a year to simplify it). The result (, 0002222) must be multiplied by the number of days of the billing cycle, which is 30. The result (, 006666) must be multiplied by the balance of $ 1500. This gives you the interest of the first month which is $ 9.99 (rounding $ 10.00).
Calculate the new balance. Subtract the interest from the monthly payment to $ 67.84 ($ 67.84-$ 10.00) to get the amount in which the balance will be reduced. The new total will be $ 1442.16 ($ 1500 – $ 57.84).
Take the next balance of the month. Repeat the first half of step 2. Take the 8% interest and divide it by 360 to get, 0002222; multiply, 0002222 for 30 days what it gives you, 006666. Your new result is now multiplied by the new balance of $ 1442.16. The new interest of $ 9.61. Complete the process for 24 months to get the total amount of interest paid.
Multiply your monthly payment by the period of time to calculate the total loan amount. Once you have the total loan amount you can calculate the total interest that will be paid. Subtract $ 67.84 and multiply it for 24 months. The total loan amount is $ 1628.16.
Subtract the principal loan amount from the total amount to get the total interest paid. ($ 1628.16-$ 1500 = $ 128.16). The total interest that will be paid from the personal loan for 24 months is $ 128.16.
Tips
Get an online loan calculator (see Yahoo Finance reference). Enter the loan amount, interest rate and time in months and press the submit button. The monthly payment can be calculated as well as the breakdown of interest paid each month. Due to rounding, the total amount of interest paid may vary. The calculations above assume that payments are made every 30 days. If you want to pay at different times of the month, you can calculate the monthly interest using the number of days between payments instead of 30 days. This will change the total amount of interest you pay on the loan.