To calculate the interest rate per month, you typically start with the annual interest rate and convert it to a monthly rate. Here are the common methods:
1. Simple Monthly Interest Rate from Annual Rate
- Convert the annual interest rate percentage to a decimal by dividing by 100. For example, 15% becomes 0.15.
- Divide that decimal by 12 (months in a year) to get the monthly interest rate.
- Example: 15100=0.15\frac{15}{100}=0.1510015=0.15, then 0.1512=0.0125\frac{0.15}{12}=0.0125120.15=0.0125 or 1.25% per month
2. Calculating Monthly Interest Amount
- Multiply the monthly interest rate (as a decimal) by the principal (loan or investment amount).
- Example: For a $5,000 loan at 1.25% monthly interest, monthly interest = 0.0125×5000=62.50.0125\times 5000=62.50.0125×5000=62.5 dollars
3. Using Simple Interest Formula for Monthly Rate
- Simple interest formula: I=P×r×tI=P\times r\times tI=P×r×t
- If you want to find the monthly interest rate rrr, rearrange as r=IP×tr=\frac{I}{P\times t}r=P×tI, where ttt is time in years or fractions of a year.
- For monthly interest, convert months to years by dividing by 12.
- Example: For 9 months, t=912=0.75t=\frac{9}{12}=0.75t=129=0.75 years
4. Compound Interest Monthly Rate (if compounding)
- If interest compounds monthly, the monthly interest rate can be found by dividing the annual percentage yield (APY) by 12.
- Compound interest formula: A=P×(1+RN)NTA=P\times (1+\frac{R}{N})^{NT}A=P×(1+NR)NT, where RRR is annual rate, N=12N=12N=12 months, TTT is time in years
Summary
Step| Formula/Method| Notes
---|---|---
Convert annual % to decimal| Annual rate ÷ 100| E.g., 15% → 0.15
Find monthly rate| Decimal annual rate ÷ 12| E.g., 0.15 ÷ 12 = 0.0125 (1.25%)
Calculate monthly interest| Monthly rate × principal| Amount of interest
charged or earned
For simple interest rate| r=IP×tr=\frac{I}{P\times t}r=P×tI| ttt in years
(months ÷ 12)
For compound interest| Use
A=P(1+R12)12tA=P(1+\frac{R}{12})^{12t}A=P(1+12R)12t| Monthly compounding
considered
This approach helps you understand how much interest accrues each month based on an annual rate or calculate the monthly rate from known interest payments
