Enter the principal loan amount, interest rates, and total number of payments for both loans into the calculator to determine the interest difference.

Interest Difference Formula

The following formula is used to calculate the interest difference between two loans. 

ID = (P * r1 * n1) - (P * r2 * n2)

Variables:

  • ID is the interest difference ($)
  • P is the principal loan amount ($)
  • r1 is the interest rate of the first loan (decimal)
  • n1 is the total number of payments for the first loan
  • r2 is the interest rate of the second loan (decimal)
  • n2 is the total number of payments for the second loan

To calculate the interest difference, multiply the principal loan amount by the interest rate and the total number of payments for the first loan. Then, multiply the principal loan amount by the interest rate and the total number of payments for the second loan. Subtract the second result from the first to get the interest difference.

What is an Interest Difference?

Interest difference refers to the variation in the amount of interest generated or charged between different types of financial products, accounts, or loans. This difference can be influenced by various factors such as the type of financial institution, the risk level of the investment or loan, the duration of the loan or investment, and the prevailing market interest rates. Understanding interest differences is crucial for making informed financial decisions.

How to Calculate Interest Difference?

The following steps outline how to calculate the Interest Difference.

  1. First, determine the principal loan amount ($).
  2. Next, determine the interest rate of the first loan (decimal).
  3. Next, determine the total number of payments for the first loan.
  4. Next, determine the interest rate of the second loan (decimal).
  5. Finally, determine the total number of payments for the second loan.
  6. After gathering all the variables, use the formula ID = (P * r1 * n1) – (P * r2 * n2) to calculate the Interest Difference.
  7. Check your answer with a calculator to verify the result.

Example Problem:

Use the following variables as an example problem to test your knowledge.

Principal loan amount ($) = 5000

Interest rate of the first loan (decimal) = 0.05

Total number of payments for the first loan = 36

Interest rate of the second loan (decimal) = 0.08

Total number of payments for the second loan = 48