1. What is the Loan Interest Formula?

The loan interest formula calculates the monthly interest payment for loans in the Philippines. It uses the principal balance and monthly interest rate to determine the interest amount due each month.

2. How Does the Calculator Work?

The calculator uses the simple interest formula:

Where:

• \( I \) — Monthly interest (PHP)
• \( P \) — Principal balance (PHP)
• \( R \) — Monthly interest rate (annual rate divided by 12, as decimal)

Explanation: The formula calculates the interest portion of a loan payment by multiplying the outstanding principal by the monthly interest rate.

3. Importance of Interest Calculation

Details: Understanding monthly interest helps borrowers plan their finances, compare loan offers, and make informed decisions about borrowing.

4. Using the Calculator

Tips: Enter principal balance in PHP and annual interest rate in percentage. All values must be valid (principal > 0, rate between 0-100).

5. Frequently Asked Questions (FAQ)

Q1: Is this formula used by all Philippine banks?
A: Most banks use this formula for simple interest loans, though some may use compound interest for certain products.

Q2: How does this differ from amortization?
A: This calculates only the interest portion, while amortization includes both principal and interest payments over time.

Q3: What's a typical interest rate in the Philippines?
A: Rates vary (3-12% annually for personal loans, higher for credit cards), depending on loan type and borrower's creditworthiness.

Q4: Does this include taxes and fees?
A: No, this calculates only the interest. Actual payments may include additional charges.

Q5: How can I reduce my interest payments?
A: Paying more than the minimum, making extra principal payments, or negotiating a lower rate can reduce total interest.