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Interest Rate Calculator

An interest rate calculator can help you assess the interest rate on a loan or mortgage from a bank or financial institution.

What is the Interest Rate Calculator?

The interest rate calculator helps you calculate interest rates on loans with set terms and monthly payments. The interest rate calculator will be helpful in such scenarios where you only have monthly payment information and the total loan and aren’t aware of the actual interest rate on your loan.  

The EMI calculator gives accurate answers in a matter of a second. You can, therefore, use the calculator to find out the EMI amount for multiple loans of different interest rates, principal amounts and tenure and compare them. This will help you choose the best loan for you, given your monthly or yearly income and needs.

How Does an Interest Rate Calculator Work?

An online interest rate calculator requires you to provide some basic information:  

  • Loan Amount
  • Loan Term
  • Monthly Payment

In a matter of seconds, the calculator will give you the interest rate being applied on the loan. The calculator also helps you compare different loan loans.

What is the Interest Rate Calculator Formula?

The interest rate calculator uses the below formula for calculating interest rate:

Interest Rate=PN / Interest Amount

Where,

  • P = Principal amount
  • N = Tenure in months

How to use the Interest Rate Calculator Online?

To use the interest rate calculator online, you must follow these steps -

  1. Enter the Principal/loan amount.
  2. Enter the Loan Term.
  3. Enter the Monthly Interest Payment.

The online interest rate calculator will automatically give you the interest rate on the loan.

For example, if you are borrowing ₹1,25,000 for 2 years and the monthly payments are ₹5,500, then simply put the below values in the calculator:

  1. Enter the total loan amount as Rs. 1,25,000.
  2. Enter the monthly payment ₹5,500.
  3. Enter the tenure as 2 years.

The calculator will automatically give you a rate of interest of 5.29%.

Note that this is just an estimation. The actual rate of interest can differ with macro and micro economic conditions. Therefore, checking the accurate interest rate with your lender can give you a clear picture.

Benefits of Using an Interest Rate Calculator

The following are some of the benefits of using an interest rate calculator -

  1. Saves Time:It lets you easily calculate the EMIs for various loans at different interest rates and tenures. It, therefore, allows you to collect a lot of data on potential EMI options very quickly and use it to arrive at an informed decision about which loan to choose.
  2. Avoid Errors:Human mistakes are common in calculations performed manually. You can calculate accurate results with the interest rate calculator.
  3. Easy to Use:These calculators are the best since they have an intuitive user interface and are suitable even for individuals who struggle with complicated calculations.

What is an Interest Rate?

Interest rate is the amount a lender charges the borrower for using their money. It is a percentage of the principal. The most common way to express interest rates is annual, although they can also be expressed as monthly, daily, or for any other duration.

In general, lenders (or investors) like high-interest rates because they can make more money; in contrast, borrowers generally desire the lowest interest rates because they will pay less.

Simple vs Compound Interest

There are methods of calculating interest. Simple interest is computed as a percentage of the principal alone. However, compound interest is computed as a percentage of the principal and any accrued interest. The interest that lenders earn overtime continues to compound as a result of this activity. The amount of interest accrued depends on how frequently interest compounds during a specific period.

Fixed vs Floating Interest Rates

A fixed interest rate is a pre-determined percentage that applies throughout the duration of the loan. On the other hand, the floating interest rate is subject to change.

Factors Affecting Interest Rate

There are many factors that affect people's interest rates on loans. Although these largely cannot be controlled, having knowledge of these factors may still be helpful.

  1. Economic Policy and Inflation: Interest rates change today mostly because of monetary policy decisions made by central banks in the majority of the nations. The Reserve Bank of India has the authority to alter the rate to sustain stable inflation.
  2. Economic Activity: There is an inverse relationship between the interest rate and the purchasing power of the individual/business. This means that rising interest rates will lead to a low appetite to borrow money and make expenses. On the flip side, falling interest rates lead to higher purchasing power. As a result, the interest rate is one of the key tools the central bank utilises to manage the economy. The interest rate is often increased by the central bank during periods of weak economic growth and decreased during periods of rapid growth
  3. Unemployment Rate Consumers spend less money, and economic growth slows when unemployment is high. Because of this, interest rates and unemployment rates are typically inversely correlated; when unemployment is high, interest rates are, therefore, artificially decreased, typically to encourage consumer spending. In contrast, interest rates rise when an economy has high consumer activity and low unemployment.
  4. Supply and Demand: The credit market is influenced by supply and demand, however, to a smaller extent than the markets for commodities and services. Lenders raise interest rates in response to an excess of demand for loans or money. They decrease rates to encourage more borrowers when there is less demand for loans or cash.

FAQs

What is the interest rate calculator?

The interest rate calculator is a tool to find the interest rate of a loan with a fixed monthly repayment amount.

Is the interest rate calculator free to use?

Yes, the interest rate calculator of Angel One is completely free to use. You only need a device with an internet connection to use it from anywhere.

How to calculate monthly interest?

The monthly interest rate can be calculated by dividing the annual interest rate by 12. In other words,

Monthly interest = Annual interest rate/12

What is the difference between fixed and floating interest rates?

The fixed loan interest rate maintains a constant interest rate that does not change with market conditions. Floating interest rates are determined by market fluctuation. The interest rate may rise and fall with the market volatility.

How will my loan repayments change if I take a floating interest rate loan?

In the case of a floating rate loan, the rate of interest changes with economic factors such as the inflation rate, the repo rate, the bank’s own business, etc. Therefore, your repayments change accordingly.

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