Interest Rate Calculator: Calculate Interest

This calculator will help you calculate or estimate the interest rate for a loan, savings account or investment. Interest rates are a key part of personal finance.

Interest rates are often used in the United States to help compare mortgages, car loans, personal loans, credit cards, savings accounts and certificates of deposit (CDs). Knowing what interest rate you would be getting can help you compare different options and work out the cost of borrowing.

For example, if you take out a loan to buy a car for $20,000 then your monthly payments and the total amount of interest you pay will be affected by the interest rate. If you put money into a savings account then the interest rate will help to determine how quickly your savings could grow.

Use this calculator to get an estimated interest rate based on your inputs. Depending on the calculation you may need to provide the principal, interest and time or the loan details including monthly payments and repayment period.

How to Use the Interest Rate Calculator

Depending on the type of interest rate you want to calculate you need to:

Enter the principal

Enter the interest or payment amount

Enter the time period

Choose the calculation type

Click calculate

Once you have calculated the interest rate check that the assumptions made by the calculator match those of your financial product. This calculator may give a different result to the APR advertised by your lender as APR takes into account some fees.

Interest Rate Formula

The right formula will depend on the type of interest rate you want to calculate.

Simple Interest Rate Formula

To calculate the interest rate for simple interest use:

r = (I/P) x (1/t) x 100

Where:

r = Simple interest rate per annum (%)

I = Total interest received or paid

P = Principal

t = Time period in years

This assumes that only the principal is used to calculate the interest.

Compound Interest Rate Formula

To calculate an estimated interest rate on a compound interest basis use:

r = nx[(A/P)^(1/(nt)) - 1]

Where:

r = Nominal interest rate (decimal)

A = Final amount (including interest)

P = Initial principal

n = Number of times interest is compounded per year

t = Time period in years

Multiply your decimal by 100 to get the percentage interest rate.

Most loan types will require a different calculation. As you will pay a set amount per month, this will include both the principal and the interest. A loan interest rate calculator can calculate an estimated rate to show what interest rate would make the present value of the payments equal to the amount borrowed, based on the loan assumptions.

Example Calculation

Say you deposit $10,000 into a savings account and earn $600 in simple interest over 2 years.

Your inputs will be:

Principal = $10,000

Total interest received = $600

Time period = 2 years

Use the formula for simple interest to calculate:

r = (I/P) x (1/t) x 100

r = ($600 / $10,000) x (1/2) x 100

r = 3% p.a

This means that you earned simple interest of 3% per annum on your deposit, assuming the principal stayed the same.

Detailed Calculation

Results

Initial deposit

$10,000

Total interest received

$600

Investment period

2 years

Estimated simple interest rate per annum

3%

Final amount

$10,600

This shows how you can use the interest amount, principal and time period to calculate a simple interest rate per annum.

If your account was compounding then the interest rate may vary. Always ensure you use the calculation that matches how the financial institution is calculating and crediting your interest.

What Does My Result Mean?

The interest rate tells you how much it will cost you to borrow money or how much you will earn on your savings and investments, in the form of a percentage.

Annual interest rate – This is the interest rate that will be applied annually. This can be a nominal or effective interest rate.

Simple interest rate – This is interest that is only charged on the principal. It is often used for simple interest calculations and some financial agreements.

Compound interest rate – This is when your interest is charged on the principal and any interest that has been credited. The amount of compounding will affect the final amount.

Annual Percentage Rate (APR) – Many loans in the United States will have an APR that shows you how much it will cost you to borrow money per annum. This will often include some fees. The calculation will depend on the product.

Annual Percentage Yield (APY) – This shows you the effect of compounding on your deposit account.

These cannot be used interchangeably. When looking at loans in the United States check the APR and any fees. When looking at deposit accounts check the APY, minimum balance and any restrictions.

Factors Affecting the Calculation

There are several factors that can affect the interest rate calculation.

Principal – The amount you are borrowing or depositing will affect the interest amount.

Time period – The longer the time period the more interest will accumulate. This will be assuming the interest rate and principal remain the same.

Compounding – Monthly, quarterly or annually compounding can affect the interest amount.

Payment schedule – If you have an amortising loan the payments will affect the interest rate.

Fees – Some loans will have fees that can affect the APR. These can include origination fees and discount points.

Fixed or variable – A fixed rate will stay the same for the defined time period. A variable rate can vary.

Credit profile – Lenders in the United States may look at your credit history, income, debt to income ratio, loan period, security and market conditions to decide what rate to offer.

Benefits and Uses

This calculator can help individuals and businesses to better understand their financial options.

Compare mortgage rates – Understand what rate you would be paying for your home and compare offers.

Car loan planning – Work out the interest rate you would be paying based on the principal, payments and period of your car loan.

Personal loan – See what you would be paying to borrow money.

Savings – Calculate what simple interest rate you would be earning on your deposit.

Investments – See what your returns would be based on the interest and compounding.

Credit card – Understand how interest is calculated on your credit card. You may be charged based on a daily periodic rate and average daily balance.

Understand what rate you would be paying or benefitting from based on the rates and terms.

By using this calculator alongside your lender’s disclosures and account terms it can help you to compare financial products.

Accuracy & Assumptions

This calculator can give an accurate calculation based on the correct formula and inputs. However, the calculation will depend on the type of calculation and amount of information given.

The simple interest calculation assumes only the principal is used to calculate the interest and that the rate will be constant. The compound interest calculation assumes that you have a set compounding schedule and that the rate will be constant over the chosen period.

The loan calculation may assume you are making regular payments and that the loan is fully amortising. In reality you may have fees, irregular payment dates, early repayment penalties, variable rates or other terms affecting your total cost.

For consumers in the United States the advertised interest rate may be different to the APR as this will include some fees for borrowing. The APY for deposit accounts may be different to the nominal interest rate as this includes the effect of compounding. Credit cards may charge interest based on a daily periodic rate.

Always check with your lender to confirm the rate. This is just an estimate.

FAQs

1. What is an interest rate?

An interest rate is the percentage charged for borrowing money or paid for allowing a financial institution to use the money you have deposited. This is often shown as a percentage per annum.

2. How do I calculate an interest rate?

To calculate a simple interest rate divide the total interest by the principal and years then multiply by 100. To calculate a compound interest rate or loan with regular payments use the correct formula.

3. What is the difference between an interest rate and APR?

An interest rate tells you how much it will cost to borrow the principal. APR will generally include the interest rate and some fees charged on the loan. This will depend on the loan type.

4. What is the difference between APR and APY?

APR is often used to show you the cost of borrowing. APY shows you the yield on your deposit account after compounding. These cannot be compared.

5. Can I calculate an interest rate on a loan?

Yes. If you know the loan amount, payment amount, frequency of payments and time period then you can use a loan based calculator to work out the interest rate. If there are any fees then you may need to include these to calculate the APR.

6. Does a higher interest rate mean a better deal?

Not necessarily. A higher interest rate may mean you earn more on your savings but you will also pay more to borrow. When comparing loans check the APR, fees, repayment and total interest. When comparing deposit accounts check the APY, fees, minimum balance and withdrawal restrictions.

7. Will I get the interest rate shown?

No. This is just an estimate. The actual rate may vary based on the lender’s terms, market rate, fees, payment schedule and account. Always confirm with the financial institution.