# How To Calculate Interest On A Loan Agreement

## Video: How To Calculate Interest On A Loan Agreement

Borrowing funds may be accompanied by the execution of a loan agreement. At the same time, this agreement should stipulate the amount of the loan itself, for how long this amount is issued and under what interest obligations. As a rule, an annual interest rate is established, and the calculation of interest for the use of a loan is carried out on a monthly basis.

## Instructions

### Step 1

To calculate the amount of interest under a loan agreement, it is necessary to determine how interest is accrued under the terms of the agreement. If the contract does not stipulate a different procedure for calculating interest on a loan, then they are charged according to the classical scheme. This occurs for the amount of the balance of the principal debt on the loan based on the annual interest rate and the billing period - a month.

### Step 2

The first amount of interest on the loan is calculated from the full amount of the loan using the formula: the amount of the loan is multiplied by the annual interest rate in shares, then divided by the number of days in the current year and multiplied by the number of days in the payment period (month). Amount% = Loan amount *% rate in shares / 365 * 31

### Step 3

If the terms of the loan agreement provide for the use of borrowed money for the entire period with monthly payment of only the amount of interest without partial repayment of the debt, then the amount of interest on the loan is retained throughout the entire settlement period. Those. the same amount of interest is charged monthly for the use of money, and at the end of the contract period, the loan amount is paid in full.

### Step 4

If the agreement provides for the monthly repayment of a part of the principal debt and interest, then the calculation of interest for subsequent settlement periods is carried out from the amount of the actual balance of the debt on the loan. Those. the amount of repayment of the principal debt and the amount of interest are monthly calculated according to the above formula in such a way that the amount of the principal debt is taken already minus the part of the debt paid in previous periods (the actual balance of the loan amount).