To calculate interest rate, start by multiplying your principal, which is the amount of money before interest, by the time period involved (weeks, months, years, etc.). Write that number down, then divide the amount of paid interest from that month or year by that number. The answer is your interest rate, but it will be in decimal format. Multiply the decimal by 100 to convert the interest rate to a percentage. If you want to learn more, like how to talk to your banker about getting a lower interest rate, keep reading the article! Show Did this summary help you?YesNo Thanks to all authors for creating a page that has been read 678,389 times. The offers that appear on this site are from companies that compensate us. This compensation may impact how and where products appear on this site, including, for example, the order in which they may appear within the listing categories. But this compensation does not influence the information we publish, or the reviews that you see on this site. We do not include the universe of companies or financial offers that may be available to you. SHARE:
 Photos by Getty Images; Illustration by Orli Friedman/Bankrate 6 min read Published December 02, 2022 Written by Michelle Black Written by Michelle BlackArrow RightContributing writer Michelle Lambright Black is a credit expert with over 19 years of experience, a freelance writer and a certified credit expert witness. In addition to writing for Bankrate, Michelle's work is featured with numerous publications including FICO, Experian, Forbes, U.S. News & World Report and Reader’s Digest, among others. Michelle Black Edited by Aylea Wilkins Edited by Aylea WilkinsArrow RightLoans Editor, Former Insurance Editor Aylea Wilkins is an editor specializing in personal and home equity loans. She has previously worked for Bankrate editing content about auto, home and life insurance. She has been editing professionally for nearly a decade in a variety of fields with a primary focus on helping people make financial and purchasing decisions with confidence by providing clear and unbiased information. An interest rate formula calculates the repayment amounts for loans and interest over investment on fixed deposits, mutual funds, etc. It is also used to calculate interest on a credit card. When a lender lends any amount to the borrower for a specific period, known as the principal amount over that lender’s charge interest, that percentage of principle is known as the interest rate. In simple words, the interest rate is the rate at which the lender charges the amount over the principal landed by the lender. The interest rate is directly proportional to risk, as risk is involved when a lender lends an amount to the borrower. It is also called compensation for an opportunity lost. In terms of investment, interest is paid on bank deposit investments like fixed, recurring, and even on the amount deposited in a savings bank account. Bank pays interest half-yearly on saving account deposits. In contrast, for fixed and recurring deposits, interest is paid based on customer request, which could be monthly, quarterly, half annually, or yearly. And the interest rate applied for one year is the annual interest. There are two types of interest rate formula:-
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Simple Interest Rate FormulaSimple interestSimple InterestSimple interest (SI) refers to the percentage of interest charged or yielded on the principal sum for a specific period.read more is levied when a loan is borrowed for one year or less. Simple interest is generally applied for the short term. Simple Interest Rate = (Principle * Rate of Interest * Time Period (years))/ 100 You are free to use this image on your website, templates, etc., Please provide us with an attribution linkHow to Provide Attribution?Article Link to be Hyperlinked In simple in it also written as, Simple Interest rate = (P*R*T)/100 You can download this Interest Rate Formula Excel Template here – Interest Rate Formula Excel Template ExampleA borrower borrows $1000 from a lender for nine months at an interest rate of 12%. Now, we will calculate the simple interest rate to be paid to a lender on a principal amount of $1000.
The interest payableInterest PayableInterest Payable is the amount of expense that has been incurred but not yet paid. It is a liability that appears on the company's balance sheet.read more to the lender is $90, and the principal amount is $1000. The total amount payable to a lender is $1090. Compound Interest FormulaCompound interest Compound Interest Compound interest is the interest charged on the sum of the principal amount and the total interest amassed on it so far. It plays a crucial role in generating higher rewards from an investment.read moreis called “interest on interest.” It is calculated on the principal amount, and of the time period, it changes with time. The time period, it changes with time. Compound Interest Rate = P (1+i) t – P Where,
Total amount payable to be lender = P (1+i) t ExampleA borrower took a personal loan from ABC bank, he borrowed $5000 amount from a bank at the interest rate of 10%, for a time period of 5 years, compounded yearly then compound interest will be:
So from the above calculation of Compound Interest will be: Use and Relevance
Recommended ArticlesThis article has been a guide to Interest Rate Formula. Here we discuss how to calculate Simple and Compound Interest rates in Excel using practical examples and downloadable templates. You can learn more about financial analysis from the following articles –
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