{"id":5103,"date":"2016-12-21T22:33:47","date_gmt":"2016-12-21T22:33:47","guid":{"rendered":"https:\/\/margill.com\/?p=5103"},"modified":"2025-10-10T10:46:17","modified_gmt":"2025-10-10T14:46:17","slug":"not-getting-right-amount-interest-month","status":"publish","type":"post","link":"https:\/\/margill.com\/en\/not-getting-right-amount-interest-month\/","title":{"rendered":"Why am I not getting the right amount of interest for a month?"},"content":{"rendered":"

Question:<\/strong><\/p>\n

Why am I not getting the right amount of interest for a month?<\/p>\n

I’ve created a payment schedule for my client for a $250,000 loan with these dates (my date format is Day\/Month\/Year, so the first payment is one month after May 5).<\/p>\n

\"\"<\/p>\n

In my “Advanced” tab I have this:<\/p>\n

\"\"<\/p>\n

And here is my payment schedule:<\/p>\n

\"\"<\/p>\n

If I do the calculation by hand I get this:<\/p>\n

$250,000 X 5.7% \/ 365 days X 30 days = $1,171.23<\/p>\n

Even if there were 31 days I am even further off:<\/p>\n

$250,000 X 5.7% \/ 365 days X 31 days = $1,210.27<\/p>\n

What’s going on? Am I using the right formula?<\/p>\n

Answer:<\/strong><\/p>\n

This is a common error. People like being able to replicate calculations and they take shortcuts. Doing it the way indicated above was a shortcut BUT the calculation was actually done with what is called Compound interest, Effective rate method<\/strong>, NOT with simple interest as you did the calculation. Compounding was annual (could have been monthly – which is more common when payments are monthly).<\/p>\n

The interest calculation formula for compound interest is:<\/p>\n

Total compounded interest = P (1 + r\/n)\u00a0<\/span>(nt)<\/sup>\u00a0<\/span>– P<\/span><\/b><\/p>\n

A<\/span><\/b>\u00a0<\/span><\/span>= future value of the loan, including interest
\nP<\/b>\u00a0<\/span>= principal amount
\nr<\/b>\u00a0<\/span>= annual interest rate
\nn<\/b>\u00a0<\/span>= number of times that interest is compounded per year
\nt<\/b>\u00a0<\/span>= number of years the money is borrowed for
\n<\/span><\/p>\n

Our numbers:<\/p>\n

P<\/b>\u00a0<\/span>= 250000.\u00a0<\/span>r<\/b>\u00a0<\/span>= 5.7\/100 = 0.05 (decimal).\u00a0<\/span>n<\/b>\u00a0<\/span>= 1.\u00a0<\/span>t<\/b>\u00a0<\/span>= 1\/12<\/span><\/p>\n

n=1 since compounded Annually
\nt= 1\/12 since 1 one month (= 0.083333)<\/p>\n

If we now plug it in the formula:
\n
\n<\/span>A = 250000 (1 + 0.057 \/ 1) ^ (1(.083333)<\/span> – 250000 =\u00a0 $1157.56.\u00a0<\/span><\/p>\n

On the penny!<\/p>\n

With Margill you can do simple interest too and even simple interest that is capitalized at various frequencies….<\/p>\n","protected":false},"excerpt":{"rendered":"

Question: Why am I not getting the right amount of interest for a month? I’ve created a payment schedule for my client for a $250,000 loan with these dates (my date format is Day\/Month\/Year, so the first payment is one month after May 5).<\/p>\n","protected":false},"author":25,"featured_media":0,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_crdt_document":"","footnotes":""},"categories":[409,193,408],"tags":[],"class_list":["post-5103","post","type-post","status-publish","format-standard","hentry","category-margill-law-and-standard-documentation","category-knowledge-base","category-margill-law-and-standard"],"yoast_head":"\r\nWhy am I not getting the right amount of interest for a month? - Margill<\/title>\r\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\r\n<link rel=\"canonical\" href=\"https:\/\/margill.com\/en\/not-getting-right-amount-interest-month\/\" \/>\r\n<meta property=\"og:locale\" content=\"en_US\" \/>\r\n<meta property=\"og:type\" content=\"article\" \/>\r\n<meta property=\"og:title\" content=\"Why am I not getting the right amount of interest for a month? - Margill\" \/>\r\n<meta property=\"og:description\" content=\"Question: Why am I not getting the right amount of interest for a month? 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