How to Figure Out Monthly Interest
Monthly interest can be calculated if you know the interest rate and the principal balance. The higher the interest rate, the more interest that accrues on a monthly basis. Interest accumulates on the unpaid principal balance. Over time the balance decreases and the amount of interest that accrues monthly decreases as well. There is a formula you will need to figure out your monthly interest. If a payment is not made on loan for a given month the interest that accrues that month is added to the principal balance.
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Instructions
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Get the terms of your loan. For example if your interest rate is 8 percent, your loan balance is $15,000, and you have 30 days in a billing cycle you can calculate the monthly interest. Take the interest rate and divide by 360 days to get the daily interest rate factor, (0.0002222).
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Take the daily interest rate factor and multiply it times the balance, then times the number of days in a month. Multiply 0.0002222 times $15,000, times 30 to get the monthly interest. In this example the monthly interest is $99.99.
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Apply a large payment of $4,500 and recalculate the monthly interest. As the balance gets smaller the monthly interest decreases. The new balance will be $10,500 after the large payment of $4,500, ($15,000 - $4,500). The new monthly interest will be $69.99. Every month the amount of interest paid will be different.
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Calculate monthly interest using a different formula. Take the balance of $15,000 times the interest of 0.08 to get the yearly interest of $1,200, then divide by 12 months to get the monthly interest of $100.
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Tips & Warnings
Many lenders use 360 days for an interest formula. They assume each month has 30 days and a year has 360 days; this is known as ordinary interest. (see reference).
Some lenders will use 365 days to calculate interest.
