How to Calculate Interest for a Late Payment

When you have a loan payment to make you will be subject to additional interest if the payment is late. To calculate the interest, you need the terms of the loan including the rate and the balance. The number of days in between payments is also used to calculate the interest. The additional interest paid is added to the principal balance. To reduce the amount of interest paid on a loan you need to pay down the balance as fast as possible.

Instructions

1. Get all of the terms for your loan. For example, if you have a balance in the amount of $5,000, with an interest rate of 8 percent and monthly payments of $250, you can calculate the interest due when a late payment occurs.

2. Divide the interest rate (0.08) by 360 days (these calculations assume each month has 30 days). Multiply that by the number of days in the billing cycle (30), and then multiply that by the balance of $5,000. The first 30 days of interest will be $33.33. When you make a payment of $250, $33.33 of it goes toward interest and $216.67 is subtracted from the principal balance. The new balance will be $4,783.33 ($5,000 - $216.67 = $4,783.33).

3. Calculate the interest for a late payment. If another payment is due in 30 days but it is not paid until 65 days later, you can calculate the interest that accrues using the same formula. Divide 0.08 by 360 and multiply that by 65. Then multiply by the new balance of $4,783.33. The interest for the 65 days is $69.08. Anything after 30 days of interest represents the interest for the late payment. To find out what the normal amount of interest would have been, use 30 days in the formula instead of 65. The 30-day interest figure would have been $31.88. Subtract $31.88 from $69.08 and you get $37.20 which represents the interest for the late payment.

References

• Window State Texas: Late Payments