Borrow ৳10,000 at 3 taka per 100 a month, pay no interest for 2 years 6 months, and have the unpaid interest added once a year: the debt reaches ৳21,825, ৳2,825 more than simple interest (৳19,000).
৳
= 10 thousand taka
taka / 100 / month
months
= 2 years 6 months
Unpaid interest is added to the principal
Total owed now
৳21,825
of which interest ৳11,825
Principal
৳10,000
Total interest
৳11,825
With simple interest it would be
৳19,000
Extra from interest on interest
৳2,825
Quoted rate per year
36%
Effective yearly rate
36.6%
If ৳10,000 borrowed at 3 taka per 100 a month goes unpaid for 2 years 6 months, with interest added once a year, the debt grows to ৳21,825 — ৳2,825 more than simple interest.
How this was calculated
Each year: interest = debt × 3% × 12 = 36% of the debt, added to the principal at year end
Last 6 months: debt × 3% × 6 (not yet added to the principal)
Enter the monthly rate per 100, e.g. 3 for 3 taka per 100 a month.
Enter how long the interest has gone unpaid, in years or months.
Choose whether unpaid interest is added to the principal once a year or every month.
See the total owed, the difference from simple interest and the year-by-year table.
Formula
Added once a year: each full year the debt × (1 + monthly rate × 12); for the remaining part year, debt × (1 + monthly rate × months)
Added every month: debt × (1 + monthly rate)months
Simple interest: principal × (1 + monthly rate × months)
Example: ৳10,000 at 3 per 100 a month, added once a year
Year
Owed at start
Interest this year
Owed at year end
1
৳10,000
৳3,600
৳13,600
2
৳13,600
৳4,896
৳18,496
3 (6 months)
৳18,496
৳3,329
৳21,825
Simple interest would give ৳19,000. Interest on interest adds ৳2,825, an effective rate of about 36.6% a year.
Good to know
Written terms: agree in writing when you borrow whether, and how often, unpaid interest is added to the principal.
Alternatives: clearing a high-rate debt with a cheaper bank or agricultural loan makes it easier to get out of the debt cycle.
More: why the debt grows so fast
Simple interest is the same amount every year because it is charged only on the principal. When interest goes unpaid and is added to the principal, next year’s interest is charged on a bigger amount. In the example above the interest is ৳3,600 in the first year and ৳4,896 in the second, at the same rate, only because the debt has grown.
Many people avoid interest for religious reasons. This calculator does not encourage borrowing; it only shows clearly how a debt grows.
Frequently asked questions
What is interest on interest?
When interest isn't paid on time, many lenders add it to the principal and then charge interest on the new, larger amount: interest on top of interest. It is also called a compounding debt.
What difference does yearly vs monthly adding make?
Monthly adding grows the debt fastest. 2 per 100 a month is 24% a year simple, but about 26.8% effective when interest is added every month.
When does the debt double?
At 3 per 100 a month with yearly adding, the debt doubles in about 2 years 3 months. With simple interest it would take about 2 years 9 months.
Is interest compounded within the first year?
With yearly adding, interest isn't added to the principal before the first year ends, so until then it equals simple interest. With monthly adding it grows from the first month.
How can I bring the debt down?
Paying at least the interest regularly stops the debt compounding. Where possible, use a lower-rate bank or agricultural loan to clear high-rate debt first, and keep written records of every payment.
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