1. What is Monthly Interest?

Monthly interest is the amount of interest charged each month on a loan or earned on an investment. It's calculated based on the principal amount and the annual interest rate.

2. How Does the Calculator Work?

The calculator uses the monthly interest formula:

Where:

• \( Principal \) — Original loan amount or investment
• \( Rate \) — Annual interest rate (in percentage)

Explanation: The annual rate is divided by 12 to get the monthly rate, then multiplied by the principal amount.

3. Importance of Calculating Monthly Interest

Details: Understanding monthly interest helps borrowers estimate loan payments and allows investors to project earnings. It's fundamental for financial planning and comparing loan options.

4. Using the Calculator

Tips: Enter the principal amount in dollars and the annual interest rate as a percentage (e.g., enter 5 for 5%). Both values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: Is this the same as monthly payment?
A: No, this calculates only the interest portion. Monthly payment includes both principal and interest.

Q2: Does this account for compound interest?
A: No, this calculates simple monthly interest. Compound interest would be more complex.

Q3: Why divide by 12?
A: Because there are 12 months in a year, this converts the annual rate to a monthly rate.

Q4: Can I use this for credit card interest?
A: Credit cards typically use daily periodic rates, so this simple monthly calculation may not be accurate.

Q5: How does this differ from APR?
A: APR includes fees and other costs, while this calculation uses just the nominal interest rate.