How Is Interest Calculated?

Remember interest may be of various types. Some companies have multiple rates. Hence, it is pivotal that you ensure you fully comprehend the way that particular interest rate would be calculated before you proceed. If you don't understand, make that company representative repeat himself/herself clearly till you do. Get a friend along if still unable to understand. It's important you know clearly and precisely what you're getting into.

For instance you have simple interest and compound interest (which are the two basic forms) as well as fixed and floating rates along with real interest and cumulative interest or return.

In case of calculation of simple interest, for example, you need to sum up whatever is the total interest paid/payable in a given period. You then divide that sum total by what the initial principal was at the commencement of the period. So on a 100 pounds (principal) loan debt where two pounds per day is what is charged: 2/100 equals 2 per cent per day interest.