# How to calculate interest For example, when you borrow funds with a credit card, you might estimate how much interest you pay using simple interest. However, most credit cards quote an annual percentage rate (APR) but actually charge interest daily, with the total of principal and interest used as the basis for the next interest charge. As a result, you accumulate a lot more in interest charges than you would tally. Simple interest is money you can earn by initially investing some money (the principal). A percentage (the interest) of the principal is added to the principal, making your initial investment grow! Learn how to calculate monthly interest for loans, bank accounts, credit cards, and more to see how much you pay (or earn) per month. How to Calculate Interest Rate. If you know the amount of a loan and the amount of interest you would like to pay, you can calculate the largest interest rate you are willing to accept. You can also look at your interest payments in a year. To calculate interest, start by determining the principal, which is the amount of money you'll be calculating interest on. Next, determine the interest rate, which was agreed upon at the outset and should be presented in a decimal number for calculation. Then, determine the length of time, or term, the interest will be accruing, which is measured in years. What is interest? When you take out a loan, whether it’s a car loan, home loan or credit card, you’ll have to pay back both the amount you borrowed and interest on top of it.But what do we mean by that? Well, essentially, interest is a fee you pay for using someone else’s (usually the bank’s) money. Simple interest (SI) is a quick method of calculating the interest charge on a loan. Use this simple interest calculator for you to do a loan, deposit rate calculation based on the SI formula. Compound Interest Formula. Compound interest - meaning that the interest you earn each year is added to your principal, so that the balance doesn't merely grow, it grows at an increasing rate - is one of the most useful concepts in finance. The easiest way to compute loan interest is with a calculator or spreadsheet, but you can also do it by hand if you prefer. For quick answers, use technology—online calculators or spreadsheets. To understand the details, do a portion of the math yourself. How to Calculate Interest By Brad Hostetter Updated March 28, 2017 Not only is interest likely a major player in whatever debt you may owe, but it can also be a key factor in making your money grow.