How do I figure out interest?

[PrincessPerky]

Like a car?

I know the rate, but what does that mean?

Is it the total balance times the rate each month?

Or is it the total balance times the rate (for the year) divided by 12 (for just this month)????

Is it really that complicated? Am I that pathetic that I can't figure out how much interest I am paying each month?

Conversly how do you figure out interest on savings each month? (k side note, I have savings worth interest! err not much, but more than pennies!)

(Additional side note, IF husband works the same OT for the year, and IF we stay in budget, and IF there were no interest, we could pay the car off this year! course that is a lot of ifs! Most likely to fail being the interest, so I need to figure it out)

[Ima saver]

Take the amount owed on the car now, multiply by the interest rate. (example, 7% is .07) divide by 12 and that will give you interest for one month. It will get lower every month. Do the same for your savings.
Let's say you have $5000 earning 5.25% Interest. $5000 times .0525 = $262.50 divided by 12 months gives you $21.875 interest earned this month.

[PrincessPerky]

Ok cool, I get it, Thank you!

excell did the math, and well we could still pay it off iIn two years f he works tons of OT...and we stay in budget...hmm

[Ima saver]

Hope you can do it!!

[DebbieL]

It depends on your loan. Hopefully, your loan calculates the interest based on what you still owe at that time. Some loans charge interest at the same rate monthly based on the original loan regardless of how much is paid off (in other words on the 5 year loan your monthly interest charge will be $75 each month instead of going down as the balance is paid).

[PrincessPerky]

Oh man I hope thats not what I have if so Ill never get it paid off!

[boefixepa]

Most car loans are based on what is left. So if pay 'extra' the interest will go down. You should be able to look on your bills, or call your loan place and they can tell you what kind of loan it is. I've yet to see a car loan that is like a house loan, where you have to pay all of the interest up front....man I wish they did house loans like they did car loans!

[vishenda]

I'm going to describe simple interest (there is also compound interest) but if you use the simple intrest calc you'll be close even if the instrument is accrue compound interest.

So you know the rate and you know the balance. Ok so your interest payment for the year is the rate times the balance. Your intest payment for a month is 1/12th of that (or rate X balance x 1/12).

Interest on savings is the same way. If you have 1,000 in savings at a 4% savings rate, you'll earn 1,000 x 4% or $40 per year. You'll earn 1/12 of that per month or $3.33 per month.

Interest on savings accounts tend to be compound interest where, say you earned $3.33 of interest in your first month. Ok, now your balance is 1,003.33 so you'd take that new balance X the interest rate. So, the interest gets added to the principal each month.

Hope that helps.