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What Does Interest Paid Mean?

What Does Interest Paid Mean?

The total amount of interest paid over the term of the loan. It is calculated by the total paid minus the principal.

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.

Financial Terms and Definitions