Calculator Use
The monthly interest calculator is a versatile tool designed to help you understand how much interest is accruing on your financial accounts every 30 days. Whether you are managing credit card debt, estimating the return on a savings account, or calculating the interest portion of a personal loan, this tool provides instant clarity.
By entering your starting principal and the annual percentage rate (APR), you can toggle between calculating total interest over a specific period, the final balance of the account, or just the specific monthly charge.
- Principal Amount
- This is the original sum of money borrowed or invested. For credit cards, this would be your average daily balance or current statement balance.
- Annual Interest Rate (APR)
- The yearly interest rate expressed as a percentage. The calculator automatically divides this by 12 to find your monthly rate.
- Time Period (Months)
- The number of months you wish to calculate the interest for. Use "1" if you only want to see the charge for the current month.
How It Works
Interest is typically quoted annually, but it is often applied monthly. To find the monthly interest, we use a simple variation of the interest formula. The logic assumes simple interest applied to the principal for the duration provided.
Monthly Interest = P × (Annual Rate / 12) × Time
- P: The Principal balance.
- Annual Rate: The interest rate as a decimal (e.g., 0.12 for 12%).
- 12: Represents the 12 months in a year to convert the annual rate to monthly.
- Time: The number of months the interest is active.
Calculation Example
Example: Suppose you have a credit card balance of $2,500 with an annual interest rate of 18%. You want to know how much interest you will be charged in a single month if you do not pay down the principal.
Step-by-step solution:
- Principal (P) = $2,500
- Annual Rate (R) = 18% (0.18 as a decimal)
- Time (T) = 1 Month
- Monthly Rate = 0.18 / 12 = 0.015
- Calculate: $2,500 × 0.015 × 1 = $37.50
- Result: Your monthly interest charge is $37.50.
Frequently Asked Questions
What is the difference between APR and Monthly Interest?
APR (Annual Percentage Rate) is the cost of borrowing money over a full year. The monthly interest rate is simply the APR divided by 12. For example, a 24% APR results in a 2% monthly interest rate.
Does this calculator account for compounding?
This specific monthly interest calculator uses the simple interest method, which is common for short-term calculations or calculating the interest portion of a single month's statement. For long-term savings where interest is added back to the principal, a compound interest calculator is more appropriate.
Why is my bank's interest slightly different?
Banks often calculate interest daily (APR / 365) and then multiply that by the exact number of days in the month (28, 30, or 31). This calculator provides a standard monthly estimate which is accurate for most planning purposes.