What is the formula for interest rate?


There are actually two main formulas you might be interested in, depending on whether you’re calculating the interest itself or trying to find the interest rate:

  • Simple Interest: This is the easiest formula and is best for situations where interest is applied only to the original principal amount. The formula is:Interest = Principal x Rate x Time

    Here’s what each variable represents: * Interest: The total amount of interest paid (I) * Principal: The initial amount borrowed or invested (P) * Rate: The interest rate as a decimal (r) (convert percentage rate by dividing by 100) * Time: The length of the time period (T) (in the same units as the interest rate – years for annual rates, months for monthly rates, etc.)

  • Finding the Interest Rate: This formula is used to isolate the interest rate when you know the other values. It rearranges the simple interest formula:Interest Rate = (Interest x 100) / (Principal x Time)

    Note: Be sure to express all values in the same units of time.

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