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Calculate Loan Interest

How to Calculate Interest on a Loan

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You may want to calculate loan interest costs as you evaluate loans. Different interest rates, loan terms, and fees can affect your total cost, so it’s important to pick the right loan. You can calculate loan interest with an online calculator or you can do the math yourself.

The easiest way to calculate loan interest is with a calculator or spreadsheet. You’ll get a quick answer detailing interest costs over time, and you can add all the costs together to see what a loan’s total interest cost is. The following pages will help you get an answer without doing much math.

Calculate Loan Interest Costs Yourself

If you do the math yourself, you’ll get a better feel for how a loan works. The best way to understand interest costs is to build an amortization table. You’ll calculate loan interest as a piece of every payment, and you can see how much interest you’ll pay over time.

Assume you borrow $100,000 at 6% for 30 years to be repaid monthly. How much interest will you pay? A sample amortization schedule (showing only the first few payments) appears at the bottom of this page. Total interest paid over the first 3 payments is $1,498.50 ($500 + $499.50 + $499).

You’ll see that early payments mostly cover interest costs. Over time, each payment pays off more and more of your loan balance.

Credit Card Interest

Credit card interest calculations are more difficult. With a credit card, your card issuer may use one of several different methods to calculate your interest charges. These calculations account for purchases and payments that occur throughout the month, and the card issuer’s approach to generating profits. For a description of these methods, see 6 Ways Finance Charges Are Calculated.

Calculate Loan Interest Rates

If you want to calculate a loan’s interest rate - as opposed to interest costs - see How to Calculate Interest Rates.

Sample Amortization Table

Period Starting Balance Payment Periodic Interest Principal Remaining Balance
1 100,000 599.55 500 99.55 99,900.44
2 99,900.44 599.55 499.50 100.04 99,800.39
3 99,800.39 599.55 499.00 100.54 99699.84
... ... ... ... ... ...
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