In each payment period during a typical loan, the payment consists of a portion set to reduce the principal of the loan, with the other portion of the payment being the interest on the principal. The amount of interest varies payment by payment. In a typical loan, the portion of the payment that is interest is highest in the first period and is reduced in each successive period.
Calculating this on paper is very tough and time consuming. But we can calculate this using Microsoft excel within seconds.
This calculation requires four inputs
- Loan principal: The amount borrowed.
- Annual Interest rate: The rate that a borrower pays to the lender. Usually it expressed as a percent(of the principal) per year.
- Number of payment periods How many times you have to pay
- Number of the questioned period Number of the actual period for which you want to calculate the interest
So make a Excel worksheet containing this rows see example below
Now put this code in the cell B6
where B3 is the annual interest rate, B5 is the period you want to calculate, B4 total numbers of periods/installment have to pay and B2 loan principal.
And you will have the amount of the Interest you have to pay the quired period.