Unearned Interest Calculator

Calculate Unearned Interest







Formula

The formula to calculate the Unearned Interest (UI) is:

\[ UI = P \cdot r \cdot (n - t) \]

Where:

What is Unearned Interest?

Unearned interest refers to the portion of a loan that has been given out but the interest on it has not yet been earned by the lender. This usually applies to loans where the interest is calculated and added to the total loan amount at the beginning of the loan period. Until the borrower makes payments, the interest portion of the loan is considered unearned by the lender. It is essentially the interest income that the lender expects to receive in the future as the loan is paid off.

Example Calculation

Consider an example where:

Using the formula to calculate the Unearned Interest:

\[ UI = 10000 \cdot 0.05 \cdot (5 - 2) = 1500 \]

This means that the unearned interest for this example is $1,500.