Interest Calculations

Interest is calculated in a number of different ways. The four used by this plugin are: fixed, simple, compound and amortization.

Also on this page: Repayments.

Note: there are other ways of calculating interest and repayments. If the way you want to do it isn’t listed get in contact.

Variables Used

Principle – The amount you want to borrow

Interest – The percentage divided by 100. for example: 2% = 2/100

Term = the number of periods to which the Interest Rate applies. For example: 5 years or 28 days

Fixed Interest

This is the simplest one of all. The formula is:

Total to Pay = Principle x (1 + Interest)

For example: a loan of $100 with an interest rate of 5% returns:

$100 x (1 + 0.05) = $100 x 1.05 = $105

It doesn’t matter how long the loan is taken out for, the interest is always the same.

Try It Yourself:

£100 £1000
1 year 10
Monthly repayment is at interest
Total you will Pay:

Simple Interest

This interest calculation takes into account the time over which the loan is taken. The formula is:

Total to Pay = Principle x (1 + Interest x Term)

For example: a loan of $100 with an annual interest rate of 5% for 4 years returns:

$100 x (1 + 0.05 x 4) = $100 x 1.20 = $120

Try it yourself:

£100 £1000
1 year 10
Monthly repayment is at interest
Total you will Pay:
 

Compound Interest

This interest calculation uses the previous total to calculate the new total over the term of the loan.

Total to Pay = Principle x (1 + Interest)Term

For example: a loan of $100 with an annual interest rate of 5% for 4 years returns:

$100 x (1 + 0.05)4 = $100 x 1.054 = $121.55

Try it yourself:

£100 £1000
1 year 10
Monthly repayment is at interest
Total you will Pay:
 

Amortization

This is used to calculated repayments where the amount of interest reduces as the loan is repaid.

Payment = rate(Present Value) / 1 – (1 + rate)-number of periods

It’s complicated. More about amortization repayments

Try it yourself:

£100 £1000
1 year 10
Monthly repayment is at interest
Total you will Pay:

Repayments

To calculate the repayments on fixed, simple and compound interest all you have to do is divide the total to pay by the number of repayments.

So for example, a 4 year Loan repaid monthly would have 48 payments.

Amortization works differently. More about amortization repayments

Web Statistics