Loans act as a support to every individual or corporate. One can avail of it anytime they want funds for any purpose. Even some small loans for bad credit can be availed within just a few hours. Moreover, loans help corporates along with individuals to save taxes as the amount of interest paid on loans can be used to take deductions. Such a super convenient way to get the required funds, only on some cost which we call interest.

Concept Of Interest

Interest is a cost of borrowing which is calculated based on the principal amount which is the amount one borrowed. When a person borrows the money, then the amount to be returned is the principal amount and the interest as well. This is how lenders make money.

The interest rates may vary on different conditions, types of loans, who is taking the loan, tenure of loan etc.

But to get the loan at the optimum rate of interest we should take the help of licensed lenders. Sometimes it is not easy to avail the loan for the people having bad credit, then some unlicensed lender provides loans for bad credit at a higher rate of interest and exploits such borrowers. But there are some licensed lenders also in the market exists which provide loans for the bad credit people, one should such lenders for loans.

Calculation Of Interest On Loan

While calculating interest on a loan, we should use the annual interest rate to get the actual amount of the interest and we should avoid using a comparison rate as it includes fees and charges into your interest amount and consequently brings out the higher amount.

To calculate your monthly interest, divide your interest rate by the number of months you are going to make payments in a year as interest rates are expressed annually so we have to divide it to get the monthly rate

Now, multiply it by the principal amount and you will get the amount of interest to be paid

For example, on a loan for $10,000 over a period of 1 year at the interest of 10%, then the monthly interest will be

   1 / 12 x 10 / 100 x $ 10,000 = $ 83.33

So, $ 83.33 is the monthly interest payment.

The next instalment will be calculated on the remaining amount after deducting interest and principal amount paid in the previous month and that is how the cycle continues.

Conclusion

The loan amount does not only depend upon the need of funds you require but also the amount you have to pay the interest rate and the overall cost of that borrowing. As that amount is the ultimate amount of loan paid off.