How to Calculate Interest on a Promissory Note

by Anna Assad, Demand Media
    A promissory note is written documentation of a debt.

    A promissory note is written documentation of a debt.

    A promissory note is a promise made in writing to pay a debt. The note itself has the repayment terms, including total owed, interest rate and payment due date or repayment schedule. Promissory notes are usually used for debts not backed by the borrower's property, such as personal loans, and sometimes by investors lending money to a business. If you have a promissory note, you'll need to do some math to figure out the owed interest.

    Step 1

    Review the promissory note. Write down the principal amount, the loan length and the interest rate. The note's interest rate should reflect the rate for a full year.

    Step 2

    Multiply the total due by the interest rate if the debt is being repaid in a year. For example, a debt of $3,000 with an 11 percent interest rate that is due in a year would have interest of $330.

    Step 3

    Calculate the figure for the number of days if the loan length is less than a year. Divide the number of days of the loan length by 365. For example, if the loan is for 90 days, divide 90 by 365, giving you 0.25.

    Step 4

    Multiply the total due by the interest rate. Multiply the result by the number of days figure to get the interest. For example, for a debt of $3,000 with an 11 percent interest rate that is due in 60 days, you would first multiply $3,000 by 11 percent, giving you $330, which represents the interest for an entire year. Multiply 330 by 0.25 to get the interest for 60 days, which is $82.50.

    Tip

    • Banks sometimes use 360 days instead of 365 days for interest calculations to set each month at an even 30 days.

    Warning

    • If the loan term is for months and not days, such as two months, you'll have to check the number of days in each month to get an accurate figure for your calculation.

    About the Author

    Anna Assad began writing professionally in 1999 and has published several legal articles for various websites. She has an extensive real estate and criminal legal background. She also tutored in English for nearly eight years, attended Buffalo State College for paralegal studies and accounting, and minored in English literature, receiving a Bachelor of Arts.

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