Interest Rate Calculator

How to Use the Interest Rate Calculator

This tool helps you calculate the interest rate on a loan based on the loan amount, loan term (in months), and the monthly payment amount. Here’s a step-by-step guide on how to use it:

1. Loan Amount

Enter the total loan amount you are borrowing. This is the principal amount of the loan.

Example: If you are borrowing $10,000, enter “10000”.

2. Loan Term (Months)

Enter the loan term in months. This is the total duration of the loan repayment period.

Example: For a 5-year loan, enter “60” (since 5 years is equivalent to 60 months).

3. Monthly Payment

Enter the fixed monthly payment amount you will be making to repay the loan.

Example: If your monthly payment is $200, enter “200”.

4. Calculate

Click the “Calculate” button to compute the interest rate, the total of all monthly payments (including principal and interest), and the total interest paid over the loan term.

Calculation Example

Let’s go through an example to illustrate how the calculator works:

• Loan Amount: $10,000
• Loan Term (Months): 60 (5 years)
• Monthly Payment: $200

When you input these values and click “Calculate”, the tool will perform the following calculations:

1. Interest Rate Calculation

The tool will estimate the monthly interest rate by iteratively adjusting a guess rate until the calculated monthly payment matches the input monthly payment within a small tolerance.

This involves solving the equation for the monthly payment:

Monthly Payment= Loan Amount×Monthly Interest Rate​ / 1−(1+Monthly Interest Rate) −Loan Term

2. Total Payments:

The total of all monthly payments is calculated as: Total Payments=Monthly Payment×Loan TermTotal Payments=Monthly Payment×Loan Term

In this example: Total Payments=200×60=$12,000Total Payments=200×60=$12,000

3. Total Interest Paid: The total interest paid over the loan term is calculated as: Total Interest=Total Payments−Loan AmountTotal Interest=Total Payments−Loan Amount

In this example: Total Interest=12,000−10,000=$2,000Total Interest=12,000−10,000=$2,000

4. Output Results:

The tool will display:

• The estimated annual interest rate.
• The total of all monthly payments.
• The total interest paid over the loan term.

Example Output

• Interest Rate: 7.93%
• Total of 60 monthly payments: $12,000
• Total interest paid: $2,000

Notes

• Ensure all input fields are filled in correctly before clicking “Calculate”.
• The results are approximations and assume fixed-rate loans with constant monthly payments.