How do you calculate 12% interest per month?

Calculating Monthly Interest: A Step-by-Step Guide

Interest calculation is a crucial aspect of financial transactions, whether it’s loan repayments, savings account earnings, or credit card balances. Understanding how to calculate monthly interest is essential for accurate financial management. In this article, we’ll delve into a simple method for determining monthly interest based on an annual interest rate.

Step 1: Divide Annual Interest Rate by 12

The first step to determining monthly interest is to divide the annual interest rate by 12. The result of this division will give you the applicable monthly interest percentage.

Example:

Suppose you have an annual interest rate of 12%. To calculate the monthly interest rate, you would divide 12% by 12:

12% ÷ 12 = 1%

Step 2: Apply Monthly Interest Percentage

Once you have determined the monthly interest percentage, you can apply it to the amount you want to calculate interest for. Simply multiply the monthly interest percentage by the principal balance.

Example:

If you have a loan balance of $1,000 and a monthly interest rate of 1%, you would multiply 1% by $1,000:

1% x $1,000 = $10

Result:

In this example, your monthly interest payment would be $10. By following these steps, you can accurately calculate monthly interest based on an annual interest rate. This calculation is essential for managing financial obligations, optimizing savings goals, and making informed financial decisions.