Identify the loan principal
Identify the annual interest rate
Identify the loan term
Determine whether the loan uses simple interest or amortized interest
For simple interest, use: Interest = Principal × Rate × Time
Convert the annual rate to a decimal
Convert the time period to years
For monthly interest, divide the annual rate by 12
For daily interest, divide the annual rate by 365
For amortized loans, calculate the monthly payment using the loan formula
Subtract the interest portion from each payment to find the principal portion
Multiply the outstanding balance by the periodic interest rate to find interest charged each period
Add all interest payments to find total interest paid
Include fees only if they are part of the loan cost calculation
Verify whether the rate is fixed or variable
Check the loan agreement for compounding frequency
Use the lender’s amortization schedule if available