To calculate the interest on a monthly basis, we need to know the interest rate or the annual interest percentage. For 2 Rupees interest per month means Rs. 2/- as interest on Rs. 100/- that is 2% per month. Here annual interest rate for Rs. 100 is Rs. 24 that is 24% p.a.
Simple Interest formula: Interest = (Principal * Rate * Time) / 100
Principal is the initial amount
Rate is the annual interest rate (in percentage)
Time is the time period in years for which the interest is calculated (here, it will be 1/12 if we’re considering one month)
Interest = [P (1 + R/)^n *T] – P
I = Value of interest
R = rate of interest (in decimal format)
N = number of periods the interest gets compounded,
T = time period/tenor/duration
Using the above simple and compounding interest formulae we can calculate Interest for different amounts
2 Rupees Interest Per Month
|Investment Amount||Monthly Interest||Annual Interest|
|Rs. 20,000/-||Rs. 400/-||Rs. 4800/-|
|Rs. 50,000/-||Rs. 1000/-||Rs. 12000/-|
|Rs. 1,00,000/-||Rs. 2,000/-||Rs. 24,000/-|
|Rs. 2,00,000/-||Rs. 4,000/-||Rs. 48,000/-|
|Rs. 5,00,000/-||Rs. 10,000-||Rs. 1,20,000-|
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Advantages of Taking for Monthly Interest for Investors
- Regular Income: Monthly interest payments can provide a steady stream of income, which can be particularly useful for individuals who rely on investment returns for their livelihood, such as retirees.
- Better Cash Flow Management: Monthly interest payments allow you to access a portion of your investment earnings regularly, making it easier to manage day-to-day expenses or plan for short-term financial goals.
- Faster Compounding: Monthly compounding of interest can potentially lead to slightly higher overall returns compared to less frequent compounding intervals, like quarterly or annually.
Advantages of Taking for Monthly Interest for Investors for Borrowers
Lower Effective Interest Cost: If you have a loan with monthly compounding and payments, your effective interest cost could be slightly lower compared to other compounding frequencies.
Smaller Monthly Payments: Loans with monthly interest might come with smaller monthly payments, making it more manageable for your budget.
Flexible Repayment: Monthly interest payments can provide some flexibility in repayment, allowing borrowers to handle interest payments on a regular basis and potentially manage their finances more effectively.
Disadvantages of Taking for Monthly Interest
- Investment Returns: Monthly interest might be lower compared to other compounding frequencies, such as quarterly or annually, potentially affecting the overall growth of your investment over time.
- Loan Costs: While monthly interest might offer smaller monthly payments, it could result in higher overall interest costs over the life of the loan compared to loans with less frequent compounding.