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You can calculate bank loan interest using a complex formula or through an online calculator. The latter is far easier to use
Banks help you with money when you need it. Lending is the heart of their business model, and they earn money through the interest they charge on the amount they lend. The bank loan interest rate varies from one bank to another and the type of loan you get. Car loan, home loan, bike loan, and personal loan are a few different loans on offer.
But we are not focusing on the loans you can avail. Instead, in this article, we deep dive into how bank loan interest rates are calculated.
What is bank loan interest?
Interest is the cost of borrowing money from someone else. If you take a ₹20,000 bank loan, you could end up paying ₹23,000 to the bank for over five years. The interest is the extra ₹3,000 you will have to pay. A part of every payment goes towards the amount you borrowed (called the principal), and the rest towards interest costs.
How to calculate bank loan interest?
Lenders use many methods to calculate interest. It is difficult to calculate loan interest because some bank loan interests involve complex calculation.
Simple interest
If your lender employs the simple interest technique, calculating loan interest is simple. Get information such as the loan's principal, interest rate, and the loan tenure.
Using the following formula, you can determine your bank loan interest rate:
Simple interest = Principal x rate of interest x loan tenure
You may find simple interest levied on some short-term loans, but banks use much more complicated methods of calculation to calculate interest.
The amount of loan interest charged depends on factors such as your credit history, income, loan amount, loan conditions, and current debt.
Amortised loan
Many lenders use amortisation to calculate interest. Student loans, mortgages, and car loans are all examples of this. The monthly payment on these loans is constant, and the loan is paid in equal instalments. What varies is how the lender allocates your contributions to the loan balance.
The early payments on amortising loans are interest-heavy, so less money you spend each month goes towards paying off your original loan balance. The lender devotes the bulk of your monthly instalments to your principal debt near the conclusion of your loan.
Bank loan interest calculator
An interest rate calculator is a useful financial tool. It helps determine the entire amount you must repay, regardless of whether you take out a personal, vehicle, or house loan. Because Equated Monthly Instalments (EMIs) comprise both a principal and an interest component, figuring out the exact amount you need to pay is critical. The calculator is especially useful for individuals taking out many loans at the same time.
You can begin by using Metra Trust’s bank loan interest calculator. It is easy to understand and accurately gives you the information you need. Metra Trust also offers some of the best bank loan interest rates. You can apply for the loan online and without visiting the bank. You can also convert an outstanding loan with a higher interest rate to a loan with Metra Trust for a much lower rate of interest.
Disclaimer
The contents of this article/infographic/picture/video are meant solely for information purposes. The contents are generic in nature and for informational purposes only. It is not a substitute for specific advice in your own circumstances. The information is subject to updation, completion, revision, verification and amendment and the same may change materially. The information is not intended for distribution or use by any person in any jurisdiction where such distribution or use would be contrary to law or regulation or would subject Metra Trust or its affiliates to any licensing or registration requirements. Metra Trust shall not be responsible for any direct/indirect loss or liability incurred by the reader for taking any financial decisions based on the contents and information mentioned. Please consult your financial advisor before making any financial decision.