What is the formula for interest

Interest on a personal loan is the extra amount you pay to the lender for borrowing money. This interest rate can change based on factors such as your credit profile, the loan amount, and the repayment period you choose. Your monthly EMI includes both the principal and the interest.

If you are planning to borrow and want clarity on costs upfront, you can check your pre-approved loan offer using your phone number and OTP. The process is online, requires no branch visit, and helps you understand your options in advance. 

Fixed-rate personal loans keep the interest rate constant, which means your EMIs stay predictable. Variable-rate loans, on the other hand, may change with market conditions. In most cases, a higher credit score leads to a lower interest rate, as it reflects stronger repayment behaviour.

Bajaj Finance Limited offers personal loans with competitive interest rates, minimal documentation, and simple eligibility criteria, making borrowing easier to plan and manage.

The simple interest formula is:

I = P × R × T

where:
I = interest
P = principal loan amount
R = annual interest rate
T = loan tenure in years

For compound interest, the formula is:

A = P × (1 + r/n)nt

where:
A = future value of the loan
P = principal amount
r = annual interest rate (decimal)
n = number of compounding periods per year
t = time in years

Interest is mainly classified into two types: simple interest and compound interest.

Simple interest is calculated only on the original principal amount over the loan tenure. Since it does not factor in previously earned interest, the calculation remains linear and easy to understand.

Compound interest, however, is calculated on both the principal and the interest accumulated over time. This leads to a higher total interest amount, especially when compounding happens frequently.

Also read: Flat vs reducing interest rate

Simple interest and compound interest are two different ways of calculating borrowing costs. Simple interest grows at a steady pace, as it is always calculated on the original loan amount. This makes it predictable and easy to track.

Compound interest grows faster because interest is added back to the principal at regular intervals. Over time, this results in interest being charged on interest, which increases the overall cost of the loan.

When taking a personal loan, interest calculation is usually more complex than simple interest. To avoid confusion and get accurate estimates, it is a good idea to use a personal loan EMI calculator. By entering the loan amount, tenure, and interest rate, you can see your expected monthly EMI clearly.

Before you move ahead, it is useful to understand how your profile aligns with the lender’s criteria. Taking a moment to check your eligibility for personal loan can help you plan your borrowing more comfortably and avoid last-minute surprises.

Apply now and get the best deal on a personal loan that supports your financial plans.

*Terms and conditions apply. Disbursal timelines may vary based on verification and eligibility.