Loan Interest Calculator
Calculate simple and compound interest on your loans. Understand how interest accrues over time and discover strategies to minimize the total interest you pay.
Interest Summary
Principal Amount:
$0.00
Total Interest:
$0.00
Final Amount:
$0.00
Interest Breakdown
Interest Rate:
0.00%
Time Period:
0 years
Interest Type:
Simple
Interest Comparison
Simple Interest:
$0.00
Compound Interest:
$0.00
Difference:
$0.00
Understanding Loan Interest
Interest is the cost of borrowing money. Understanding how interest is calculated and how it affects your loans can help you make better financial decisions and potentially save thousands of dollars over time.
Types of Interest
Simple Interest
- Calculated only on principal
- Formula: P × R × T
- Interest doesn't compound
- Used for short-term loans
Compound Interest
- Interest on interest
- Grows exponentially
- Used for most loans
- More expensive over time
Fixed Interest
- Rate stays the same
- Predictable payments
- Common for mortgages
- Higher initial rates
Variable Interest
- Rate can change
- Payments can fluctuate
- Often lower initial rates
- Risk of rate increases
Interest Calculation Formulas
Simple Interest Formula
I = P × R × T
- I = Interest amount
- P = Principal amount
- R = Interest rate (decimal)
- T = Time period (years)
Compound Interest Formula
A = P(1 + r/n)^(nt)
- A = Final amount
- P = Principal amount
- r = Annual interest rate
- n = Compounding frequency
- t = Time period (years)
Compounding Frequencies
| Frequency | Times per Year | Example Loans | Impact |
|---|---|---|---|
| Annually | 1 | Some savings accounts | Least compounding |
| Semi-annually | 2 | Some CDs | Moderate compounding |
| Quarterly | 4 | Some loans | More frequent |
| Monthly | 12 | Most loans, credit cards | Most common |
| Daily | 365 | High-yield savings | Most compounding |
Interest Rate Factors
What Affects Your Interest Rate
Credit Score
- Higher score = lower rate
- Excellent: 740+
- Good: 670-739
- Fair: 580-669
Loan Type
- Secured vs unsecured
- Loan amount
- Loan term
- Market conditions
Economic Factors
- Federal Reserve rates
- Inflation
- Economic growth
- Supply and demand
Personal Factors
- Income stability
- Debt-to-income ratio
- Employment history
- Down payment amount
Minimizing Interest Costs
Payment Strategies:
- Make extra payments
- Pay more than minimum
- Bi-weekly payments
- Lump sum payments
Rate Optimization:
- Improve credit score
- Shop for better rates
- Consider refinancing
- Pay down other debt
Interest vs. Principal
Early in Loan Term:
- Most payment is interest
- Little principal reduction
- Slow equity building
- High interest portion
Later in Loan Term:
- Most payment is principal
- Rapid principal reduction
- Fast equity building
- Low interest portion
Key Takeaways for Loan Interest
- Compound interest grows your debt faster than simple interest
- The longer you take to pay off a loan, the more interest you'll pay
- Extra payments reduce both future interest and loan term
- Understanding amortization helps you see how payments are allocated
- Shop around for the best interest rates before committing
- Improving your credit score can significantly lower your interest rates
- Consider the total cost of borrowing, not just monthly payments
- Early loan payoff saves substantial interest over the life of the loan