How to Calculate Interest Rates

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A list of things that make many people cringe might include interest rates and math. Whether you're learning about interest rates in math class or you're trying to determine an interest rate for yourself, as long as you have the formula calculating interest is easy. You must know the variables: interest rate, principle and time.

Things You'll Need

  • Calculator

Finding Interest

  • Know and understand the formula for finding interest:

    P = principle, R = rate, T = time (normally in years) and I = Interest.

    P (principal) x R (rate) x T (time) = I (interest)

    Let's say you purchased a car for $18,670 (principal) with a six-year loan at an interest rate of 3.7 percent.

  • Set up the equation. I = P x R x T

    Plug in your variables:

    I = 18,670 x 3.7 x 6

  • Convert your the interest to a decimal figure: 3.7 percent = 0.037.

    I = 18,670 x 0.037 x 6

    18,670 x 0.037 = 690.79

  • Multiply 690.79 by 6 to finish the equation.

    690.79 x 6 = 4,144.74

    The interest will be $4,144.74.

Finding Interest Percent Rate

  • Know the equation to find the percent: R = I / PT.

    The task is to determine what annual interest rate is needed for $3,120 to earn $150 in 18 months.

  • Plug in your numbers to begin solving:

    R = 150 / (3,120)(18/12)

    The second parenthetical factor represents the number of payments divided by the number of months in a year.

    R = 150 / 3,120 x 1.5

    R = 150 / 4,680

  • Divide 150 by 4,680 to solve.

    R = 150 / 4,680

    Now solve:

    R = 0.032

    R = 3.2 percent

    The interest rate will be 3.2 percent.

References

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