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Interest Rate

Learn about the interest rate and its calculation.

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Interest Rate

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  1. What is Interest Rate ? • The rate of amount paid by the borrowers to the lenders for the money borrowed.

  2. You need to pay a certain amount as monthly payments with this interest rate for the amount you borrowed from the lender. • It is expressed in %

  3. Do you know how to calculate it ?

  4. Interest Rate Calculation • Your inputs would be Initial Payment, Monthly Payment and Number of Years. • Initial Payment The amount borrowed from lender. • Monthly Payment The amount paid to the lender monthly till the term gets completed. • Number of Years The number of years you will pay the amount to the lender.

  5. Interest Rate Formula • The formula used for the interest rate calculation is : • i ≈ [ ( 1 + ( P/A ) ) 1/q - 1 ] q - 1 • Where, • q = log[ 1 + (1/N) ] / log2 • N = n * 12 (here n = number of years) • P = Payment Amount • A = Initial Amount • N = Number of Payments

  6. Interest Rate Calculation • Consider your initial payment is Rs. 30000, monthly payment is 500 and the number of years would be 6.

  7. Apply all the values in the formula : • i ≈ [ ( 1 + ( P/A ) ) 1/q - 1 ] q - 1 • = 6.24 %

  8. Find it more easier to calculate with an Interest Rate Calculator. • https://www.easycalculation.com/mortgage/interest-rate.php

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