Almost everyone in the nation has applied for or availed a loan in their lifetime. The importance of loans in India cannot be underestimated as they help majority of the people deal with financial issues. However, loans are not a not-for-profit tool; every lender needs to manage their costs as well. As a result, they charge interest on the loan. However, many people are uncertain of the methods used by banks to determine the interest on a loan. The best way to determine the interest on a loan is by using interest rate calculator. All lenders including banks, online lenders, and NBFCs provide online interest calculators. But, do you know how interest rate calculator works? Let’s find out:

Bank Interest Calculator

If you are availing loan from a bank, then there are two methods through which banks calculate interest. One is simple interest and another is compound interest.

The formula for simple interest is: PRT/100. In this equation, P stands for principal (loan amount), R stands for rate of interest (in percentage), and T is for time (provided in years).

The formula for compound interest is: [P x (1 + R)^N] – P. In this equation, P stands for principal (loan amount), R for rate of interest (in percentage), and N is for time (period of loan in years).

However, there are a lot of factors that affect the interest rate calculators used by banks. So, what are the factors that impact the interest calculator?

Factors that Impact Bank Interest Calculator

There are a lot of factors that affect the interest calculations of banks directly and indirectly. The factors are:

  • Your credit score
  • Your annual income
  • Your employment status and nature of employment
  • Tenure of the loan
  • Type of loan
  • Your financial history and current status

The guidelines provided by and the regulations set by the Central Bank also govern the interest on a loan. There are also some other factors such as market scenario among other aspects that impact the interest. The bank interest calculator accounts for all these factors based on the bank.



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Attractive Interest Rates with PaySense

Now that you know the intricacies involved in the calculation of the interest rate, you should also know some other key aspects before applying for loan. A key aspect about banks that you need to know is that while they may provide loans at a lower interest rate, their process and bureaucracies take time. However, PaySense offers you instant loans up to INR 2 Lakhs at attractive interest rates. You can even calculate the interest you have to incur by using the online interest calculator. However, if you still want to apply to banks, check out our list of banks that offer the best interest rates on personal loans.