1. What is the Loan Interest Formula?

The simple interest formula calculates the monthly interest payment for a loan. It multiplies the principal balance by the monthly interest rate.

2. How Does the Calculator Work?

The calculator uses the simple interest formula:

Where:

• \( P \) — Principal loan amount ($)
• \( R \) — Monthly interest rate (annual rate ÷ 12, as decimal)
• \( I \) — Monthly interest payment ($)

Explanation: The formula calculates how much interest you'll pay each month based on your current loan balance and interest rate.

3. Importance of Interest Calculation

Details: Understanding your monthly interest helps with budgeting, comparing loan options, and planning early repayments to reduce total interest paid.

4. Using the Calculator

Tips: Enter your current loan balance and annual interest rate. The calculator will show your estimated monthly interest payment.

5. Frequently Asked Questions (FAQ)

Q1: Is this for simple or compound interest?
A: This calculates simple monthly interest. For compound interest, the calculation would be more complex.

Q2: Why convert annual rate to monthly?
A: Most loans calculate and charge interest monthly, so we divide the annual rate by 12.

Q3: Does this include principal payments?
A: No, this shows only the interest portion. Your total payment would be higher if you're also paying down principal.

Q4: How accurate is this calculation?
A: It's accurate for simple interest loans. For amortizing loans, the interest amount changes as the principal decreases.

Q5: Can I use this for credit cards?
A: Yes, if you know your current balance and APR, you can estimate your monthly interest charge.