How do I figure out interest?

Question

Like a car?

I know the rate, but what does that mean?

Is it the total balance times the rate each month?

Or is it the total balance times the rate (for the year) divided by 12 (for just this month)????

Is it really that complicated? Am I that pathetic that I can't figure out how much interest I am paying each month?

Conversly how do you figure out interest on savings each month? (k side note, I have savings worth interest! err not much, but more than pennies!)

(Additional side note, IF husband works the same OT for the year, and IF we stay in budget, and IF there were no interest, we could pay the car off this year! course that is a lot of ifs! Most likely to fail being the interest, so I need to figure it out)

Answer 1

I'm an accountsnt...It's the total principal balance times the interest rate divided by 360 days (some banks use 360 days instead of 365 days) times 30 days or the number of days in the month.

Go to www.bankrate.com/brm/amortization-calculator.asp

Enter your information and will give you detailed schedule of principal & interest you are paying...Good luck !!

Answer 2

You're not dumb-- may people are confused.

I'm going to describe simple interest (there is also compound interest) but if you use the simple intrest calc you'll be close even if the instrument is accrue compound interest.

So you know the rate and you know the balance. Ok so your interest payment for the year is the rate times the balance. Your intest payment for a month is 1/12th of that (or rate X balance x 1/12).

Interest on savings is the same way. If you have 1,000 in savings at a 4% savings rate, you'll earn 1,000 x 4% or $40 per year. You'll earn 1/12 of that per month or $3.33 per month.

Interest on savings accounts tend to be compound interest where, say you earned $3.33 of interest in your first month. Ok, now your balance is 1,003.33 so you'd take that new balance X the interest rate. So, the interest gets added to the principal each month.

Hope that helps.

Answer 3

The formula is very simple...

Interest = Principal balance X Rate paid X Length of time