Learning to calculate loan interest helps you compare offers and see what a loan really costs. This guide breaks down simple vs. compound interest, APR, and a worked example — then you can compare real offers in one 60-second application.
When you calculate loan interest, you're working out the cost of borrowing — the extra you pay a lender on top of the amount you borrow (the principal). The rate is usually shown as an annual percentage rate (APR), which every lender in Canada must disclose before you sign. This guide shows how it adds up so you can compare offers with confidence.
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There are two ways interest is charged:
Because the math differs, the headline rate alone doesn't tell the whole story — which is exactly why the APR exists. APR rolls the interest rate and certain fees into one yearly figure so you can compare loans on a level footing.
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Say you borrow $2,000 at a 20% annual simple interest rate for 1 year. Using Interest = Principal × Rate × Time:
$2,000 × 0.20 × 1 = $400 in interest — so you'd repay about $2,400 in total.
Spread over 12 monthly payments, that's roughly $200 a month. Stretch the same loan to 2 years and the monthly payment drops, but you pay interest for twice as long — so the total cost goes up. That trade-off is the single most important thing to understand: a lower monthly payment often means a higher overall cost.
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When you compare loan offers, the total cost of borrowing — principal plus all interest and fees — is the number that matters. Two loans with the same monthly payment can cost very different amounts overall, depending on the term.
In Canada, every lender must disclose the APR and total cost before you sign, and rates must stay within the federal 35% APR cap under Canadian cost-of-borrowing laws. The simplest way to find your real rate is to compare personal loan offers — comparing on Loanspot won't affect your credit score.
The questions Canadians ask most about interest.
Use Interest = Principal × Rate × Time. For $2,000 at 20% for one year, that's $2,000 × 0.20 × 1 = $400 in interest.
The interest rate is the cost of the principal alone. The APR rolls the rate plus certain fees into one yearly figure, so it's the better number for comparing loans.
As a borrower, simple interest is generally cheaper because it's charged only on the principal. Many fixed-term personal loans use it; credit cards typically compound.
Usually yes. A longer term lowers the monthly payment but charges interest for longer, raising the total cost. Choose the shortest term you can comfortably afford.
Lenders must stay within the federal criminal interest-rate cap of 35% APR and disclose the full cost before you sign.
Compare real offers. On Loanspot, one 60-second application matches you with lenders and shows real rates — with no impact to your credit to compare.
Yes. Canadian cost-of-borrowing laws require lenders to disclose the APR and total cost of borrowing before you sign anything.
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