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Step-by-Step Guide on Calculating Interest Rate per Month
Whether you are taking a loan, you have put your money into a savings account, or you want to track your debt on your credit card, interest rates will tell it all in financial planning. Here is how you should go about calculating your interest rate per month.
We enable you to utilize a completely free online application to calculate the interest rate per month at Coding India Lab. In this blog, we will walk you through various methods to compute the interest rate per month and explain why the use of monthly interest rates is equally important in financial management.
Understanding Interest Rate Per Month
A period of one month can be called an interest rate per month.
Annual Interest Rate (APR): This is how much interest one pays from lending or earns from deposits over a yearly basis.
Monthly Interest Rate: This is the interest rate charged against a given balance over a month. It is a fraction of the annual interest rate.
There are two types of interest rates, and they are simple and compound. Now, let’s understand them one by one.
Formula to Find Monthly Interest Rate
1. Formula to find Simple Interest
The formula to calculate simple interest is given below:
Where,
- SI = Simple Interest
- P = Principal Amount
- R = Annual Interest Rate (in %)
- T = Time Period (in years)
To calculate the monthly interest, we simply divide the annual rate by 12:
Example Calculation (Simple Interest) If you borrow ₹10,000 as loan for six months at an annual interest rate of 12%.
Monthly Interest Rate = 12% ÷ 12 = 1% per month
Interest for 6 months = (10,000 × 12 × 0.5) / 100 = ₹600
Total to be paid after 6 months = ₹10,600
2. Compound Interest Formula
Compound interest is defined as:
- A = Final Amount
- P = Principal Amount
- r = Annual Interest Rate (decimal)
- n = Compounding periods per year
- t = Time expressed in years
Compound Interest Example
Let you deposit the amount of principal ₹5,000 at an annual interest rate is 12%. And compounded by compounding of the interest half-yearly it may take 1 year. so, 12 % ÷12=1 %or 0.01 (decimal form) Compound Interest Formula: So, interest at one end= ₹5,634- ₹5,000= ₹ 634.
Why the Calculation of the interest is taken as monthly?
1. Better Financial Planning
This amount of monthly interest will then be used while planning the cost side and investing side.
2. Loan Management
The idea of monthly interest in loans will allow comparisons to be made regarding the offers made by a bank before finalizing a loan.
3. Investment Decisions
While investing in fixed deposit accounts and mutual funds, knowing the calculation of monthly interest shall enable one to estimate the returns at hand.
CodeIndiaLab’s Interest Rate Calculator Available Free of cost
At Coding India Lab, we provide an online free Interest Rate Calculator to make this calculation very simple.
How to Use This Tool?
- Open the website of Coding India Lab.
- Search the Compound Interest Calculator
- Select the type of interest you want. It may be simple or compound interest.
- Click on ‘Calculate’ to get the results in no time.
Features of Our Tool
- Fast Calculations with no error
- Both Simple and Compound interests supported
- Easy User Interface
