1. What is a Monthly Interest Calculator?

Definition: This calculator computes the monthly interest payment based on the principal amount and annual interest rate.

Purpose: It helps borrowers and investors understand how much interest will be paid or earned each month.

2. How Does the Calculator Work?

The calculator uses the formula:

Where:

• \( I \) — Monthly interest (USD)
• \( P \) — Principal amount (USD)
• \( r \) — Annual interest rate (decimal)

Explanation: The annual interest is calculated by multiplying principal by rate, then divided by 12 months to get the monthly amount.

3. Importance of Monthly Interest Calculation

Details: Understanding monthly interest helps with budgeting, loan comparisons, and investment planning.

4. Using the Calculator

Tips: Enter the principal amount in USD and annual interest rate in percentage. All values must be > 0.

5. Frequently Asked Questions (FAQ)

Q1: Is this for simple or compound interest?
A: This calculates simple monthly interest. Compound interest requires a different formula.

Q2: Should I enter the rate as percentage or decimal?
A: Enter as percentage (e.g., 5 for 5%). The calculator converts it to decimal.

Q3: Does this include principal payments?
A: No, this calculates interest only. For full payment calculations, use an amortization calculator.

Q4: Can I use this for investments?
A: Yes, it works for both loans and interest-bearing investments.

Q5: Why divide by 12?
A: This converts the annual rate to a monthly rate by dividing by 12 months.