Total Interest Formula

Using the total interest formula, one can calculate the percentage of the principal amount, charged by the lender or bank to the borrower for the use of its assets or money for a specific time period. In this section, we will be discussing the various aspects of the total interest formula, and understand the variables involved.

What Is the Total Interest Formula?

The total interest formula is a formula to find the total simple interest on a principal amount at a particular rate of interest over a  period of time. The Total Interest Formula of a given value can be expressed as,

I = P×R×T

Where,

• I = Total Interest
• P = Principal amount
• R = Rate of interest on the principal amount
• T = Time period

Let us see the applications of the total interest formula in the below section.

Examples Using Total Interest Formula

Example 1: Find the simple interest on $36,000 at a 12% per annum rate of interest for a period of 4 years.

Solution:

To find: Total interest
Given,
Principal amount = 36,000
Rate of interest = 0.12
Time = 4 years.

Using the total interest formula,
I=P×R×T
I = 36000×0.12×4
 = $17,280 .

Answer: The simple interest $17,280.

Example 2: Find the principal amount for which total interest for 3 years comes out to be $20,000 at 10% rate of interest.

Solution:

To find: The principal amount.
Given,
Total interest = $20,000 
Rate of interest = 0.10
Time = 3 years

Using the total interest formula,

I=P×R×T

20000 = P×0.10×3
P = 20000 / (0.10×3)
p = 66,666.67 

Answer: The principal amount is $66,666.67.