How to Calculate rate of interest on loan

How to calculate rate of interest on loan, Calculating the rate of interest on a loan involves a straightforward formula.

Simple Interest(SI)=P×R×T÷100

Where:

-P is the principal amount
-R is the rate of interest per time period
-T is the time the money is borrowed or invested for, in years

Here’s a step-by-step guide:

1. Understand the Variables:
-P is the principal amount.
-R is the rate of interest per time period (usually per annum).
-T is the time the money is borrowed or invested for, in years.
2. Plug in the Values: Insert the values of P, R, and T into the formula.
3. Calculate: Perform the multiplication and division operations according to the formula.
4. Interpret the Result: The result will be the simple interest accrued over the given time period.
Keep in mind that this formula gives you the simple interest. If the interest is compounded (interest on interest), a slightly different formula is used:

Compound Interest(CI)=P×(1+R/100)T −P

Where:
-P is the principal amount.
-R is the annual interest rate.
-T is the time the money is invested in years.

If you want to calculate the total amount (including principal and interest), you would add the simple or compound interest to the principal:

Total Amount = P + Simple Interest or Total Amount = P + Compound Interest

Example How to Calculate rate of interest on loan

Simple example to calculate the rate of interest on a loan.

Example:
Suppose you borrow 10,000 (principal amount) for 3 years at an interest rate of 5% per annum.

Given:

• Principal amount (P): 10,000
• Time (T): 3 years
• Rate of interest per annum (R): 5% or 0.05

Using the formula for simple interest:
Simple Interest (SI) = P×R×T÷100

Calculation:
SI= 10,000 × 0.05 × 3 ÷ 100
SI = 500 × 3
SI = 1,500

Interpretation:
The simple interest on the loan is $1,500. If you want to find the total amount repaid at the end of the 3 years, you would add the principal and the interest:

Total Amount = P+SI=10,000+1,500=11,500
So, in this example, after 3 years, you would repay a total of 11,500.

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