By way of illustration, let’s say that Joyce finishes paying off the installment loan she took out to complete some home repairs. Her original balance (the principal) was $350. The total she paid was $550. The interest paid amount, therefore, is $200 on the loan.
The interest paid on a loan can be calculated at anytime during the loan repayment schedule. For instance, in the above example, if Joyce is halfway through paying her loan, she has paid $275 off. However, of that total amount paid, it is possible $184 of that could be the interest paid, with the other $91 being the payment towards the principal.
When someone borrows a loan, especially an installment loan, the interest rate is set by a number of factors, such as the borrower’s credit history and the institution’s rates for those types of loans. The interest paid factors in because it will be a result of the rate set in the terms of that loan.