How do you calculate principal and interest?
Start or buy a businessBusiness strategy and planningMoney and financeMarketing, sales and exportEmployeesOperationsTechnologyChange of ownershipEntrepreneurial skillsCOVID-19Entre
- Start or buy a business
- Business strategy and planning
- Money and finance
- Marketing, sales and export
- Employees
- Operations
- Technology
- Change of ownership
- Entrepreneurial skills
- COVID-19
- Entrepreneur's toolkit
- Business assessments
- Financial tools
- Templates and business guides
- eBooks
- Publications
- Podcasts
- Webinars
- Entrepreneur's Learning Centre
- Blog
- Sustainability
Principal + Interest paymentsShare
In a principal + interest loan, the principal (original amount borrowed) is divided into equal monthly amounts, and the interest (fee charged for borrowing) is calculated on the outstanding principal balance each month.
This means the monthly interest amount declines over time as the outstanding principal declines. As a result, a principal + interest loan results in less interest than a blended payment loan.
More about principal + interest payments
Below is an example of a $100,000loan with a 12-month amortization, a fixed interest rate of5% and equal monthly payments of principal + interest with a declining total payment. The principal payment stays the same each month, while the interest payments and total monthly payments decline.
Related definitions
- Bank operating loan
- Borrower
- Loan
- Lender
- Lending agreement
Find out more in our glossary
Useful resources
Personal or business loan: Which one best suits your needs
Access tostart-upfinancing is essential for most new businesses, but for many entrepreneurs just starting out, their biggest challenge is getting adequate financing.
Read article
Business loan calculator
Calculate how much a business loan will cost your business.
Learn moreShare