How Loan Interest Is Calculated
Learn how interest is calculated on different types of loans.
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Types of Interest
Simple Interest
SI = (P x R x T) / 100
Compound Interest
A = P(1 + r/n)^(nt)
CI = A - P
Loan Types
Home Loan: Usually reducing balance method
Personal Loan: Usually flat or reducing balance
Car Loan: Usually flat rate
Example
Loan: 5,00,000, Rate: 10%, Term: 5 years
Simple Interest: 2,50,000
Total payment: 7,50,000