Monthly Interest Calculation

To determine the amount of interest you will be required to pay in a given month, use the following formula called the Simple Daily Interest formula:

Interest Rate Factor

The interest rate factor is used to calculate the amount of interest that accrues on your loan. It is determined by dividing your loan's interest rate by 365.25 (the number of days in a year). See the following table to see some examples of interest rate factors.

Practice Example: Let's say the remaining balance on your loan is $9,500.00 and your interest rate is 8.25% (interest rate factor is .00022587). You sent in a payment of $160.00 32 days after your previous month's payment, and you're wondering how much of that payment went toward the principal balance of your loan.

32 (days) x $9,500.00 (PBO) x .00022587 (interest rate factor) = $68.66 of your payment applied to interest.

$160.00 (payment) - $68.66 (interest) = $91.34 applied to your principal loan balance

In this scenario, you paid $68.66 toward interest and $91.34 toward the principal balance. This would leave you with a principal loan balance of $9,408.66 after the $160.00 payment was applied ($9,500.00 PBO - $91.34 paid toward PBO = new PBO of $9,408.66).