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Total Interest Formula:
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The Total Interest Paid calculation determines the total amount of interest paid over the entire loan tenure using the amortization formula. It helps borrowers understand the true cost of borrowing beyond just the principal amount.
The calculator uses the formula:
Where:
Explanation: This formula calculates the difference between the total amount paid over the loan term and the original principal, which represents the total interest cost.
Details: Understanding total interest paid helps borrowers make informed decisions about loan options, compare different loan products, and plan their finances more effectively by visualizing the true cost of credit.
Tips: Enter the EMI amount in currency, the total number of monthly payments, and the principal loan amount. All values must be positive numbers for accurate calculation.
Q1: Why calculate total interest paid?
A: It helps borrowers understand the true cost of borrowing and compare different loan options more effectively.
Q2: Does this calculation work for all types of loans?
A: This formula works for fixed-rate amortizing loans where EMI remains constant throughout the loan tenure.
Q3: How can I reduce total interest paid?
A: Making extra payments, choosing shorter loan terms, or negotiating lower interest rates can reduce total interest costs.
Q4: Is this calculation accurate for variable rate loans?
A: No, this calculation assumes a fixed interest rate. Variable rate loans require more complex calculations as EMI amounts may change.
Q5: What's the difference between interest rate and total interest paid?
A: Interest rate is the percentage charged on the principal, while total interest paid is the actual monetary amount paid over the entire loan term.