total interest

How to Calculate Total Interest on a Personal Loan


It is no secret that living expenses are high in Canada. Everywhere on the news you see that interest rates are higher, grocery bills have skyrocketed, and many Canadians are now living paycheck to paycheck. 

But we don’t need the news to tell us that life is expensive, we feel it in our wallets! If you are looking for a loan, whether you’re thinking about sprucing up your home or planning that much-needed vacation, personal loans can be your best friend in bringing your dreams to life.

But wait, before you dive in, it’s super important to understand what you’re getting into, especially when it comes to total interest.

We’re here to guide you through the exciting world of personal loan interest calculations. Don’t worry, well make it simple and fun!

Personal Loan Interest and Terms: What You Need to Know

Let’s break down some key terms to help you navigate the landscape of personal loans with ease and confidence. 

First and foremost, let’s talk about the “Principal.” This is essentially the amount of money you are borrowing. Think of it as the foundation of your loan.

It’s critical to know the principal amount, as it’s from here that everything else is calculated. The principal is like the base investment you’re making in your future!

Interest Rate

This is the cost of borrowing money and is a way for the lender to make a return on the loan. It’s expressed as a percentage.

There are two types of interest rates: fixed and variable.

Fixed rates stay the same throughout the life of the loan, providing stability and predictability. Variable rates, however, can change over time based on market conditions.

It’s like weather patterns; sometimes predictable, sometimes not, so make sure to pack an umbrella just in case!

Loan Term

This is the length of time you have to repay the loan. It’s crucial to consider how the length of your loan will affect both your monthly payments and the total interest paid over time.

Generally, a shorter term means higher monthly payments but less interest over time, while a longer term means lower monthly payments but more interest paid in the long run. It’s a balancing act!


These are additional costs that can be associated with the loan, apart from the interest. Common fees include:

  • Origination fees
  • Late payment fees
  • Prepayment penalties

Being aware of these fees is essential, as they can affect the overall cost of your loan.

The Basics of Interest on a Loan

Let us delve deeper into the art of interest calculation. This is where the rubber meets the road in understanding the growth of your investments or the cost of your loans.

Simple Interest

Think of it as the clear-cut, no-frills way interest is calculated. It’s based only on the principal amount of a loan or deposit.

The formula for calculating Simple Interest is: Simple Interest = Principal x Rate x Time.

For instance, if you borrow $1,000 at an annual interest rate of 5% for 2 years, your interest would be $1,000 x 0.05 x 2 = $100.

Compound Interest

Now, let’s shift our focus to “Compound Interest,” which is slightly more intricate. Compound interest takes into account not only the principal but also the interest that has been added to it during previous periods.

It’s like a snowball; as it rolls downhill, it gathers more snow and gets bigger.

The formula for calculating Compound Interest is: Compound Interest = Principal x (1 + Rate)^Time – Principal.

For example, if you borrow $1,000 at an annual interest rate of 5% compounded annually for 2 years, your compound interest would be $1,000 x (1 + 0.05)^2 – $1,000 = $102.50.

It’s a subtle difference from simple interest, but over time this can accumulate significantly.

Understanding the distinction between simple and compound interest is an essential element in making knowledgeable financial decisions. It enables you to discern how your money can work effectively. Empower yourself with this knowledge, and you’ll be navigating the financial seas with confidence and finesse.

How to Calculate Monthly Payments and the Total Interest

Now, let’s roll up our sleeves and get into the nitty-gritty of calculating monthly payments and total interest on a personal loan. Equip yourself with these handy tools and you’ll be a loan calculation wizard in no time!

Amortization Formula

First up, we have “Amortization Formulas” as a method, especially helpful for installment loans. Amortization is like a roadmap for paying off a loan.

It details each payment’s journey, splitting it into interest and reducing the principal. There’s a math-packed formula for amortization, but don’t worry, it’s not as scary as it looks!

The formula is: Monthly Payment = P x (r(1+r)^n) / ((1+r)^n)-1), where:

  • P is the principal
  • R is the monthly interest rate
  • N is the number of payments

Let’s say you borrowed $10,000 at an interest rate of 5% for 3 years. Plugging these into the formula, your monthly payment would be about $299.71.

Online Loan Calculators

These calculators are the fast food of loan calculation:

  • Quick
  • Convenient
  • Readily available

They’re great if math isn’t your strong suit.

Just input your:

  • Loan amount
  • Interest rate
  • And term

And voila! The calculator does the heavy lifting!

A tip? Double-check the numbers and know that these calculators give you a ballpark figure.

Spreadsheet Software

Excel, for instance, is an incredibly powerful tool for number crunching.

You can use functions like PMT for calculating monthly payments or CUMIPMT for figuring out the total interest over the life of a loan.

For instance, using PMT in Excel to calculate the monthly payments on a $10,000 loan at 5% interest over 3 years, you’ll enter =PMT(5%/12, 36, 10000) and find that your monthly payment would be about $299.71, just like in our amortization example!

Understanding and using these methods empowers you to make informed decisions and keeps surprises at bay. Whether you’re a math enthusiast or prefer leaving the calculations to automated tools, there’s a method for everyone.

Now go forth, crunch those numbers, and take charge of your financial journey!

Are You Ready to Calculate Your Total Loan Amount?

You’re now well-equipped with the tools and knowledge to master total interest calculations. It’s like unlocking a superpower that’s going to make your financial journey smooth and surprise-free.

As you get ready to embark on this road, remember that choosing the right lender is just as important. Teka Loans is here to back you up, with transparent loan terms and a team that cares.

Take control of your financial destiny with confidence and make informed choices. To explore the offerings at Teka Loans, give them a ring at 1-866-214-0079, or apply at

Get money today with our instant loans