Loan interest is typically calculated using the outstanding principal balance, the interest rate, and the length of time the loan is outstanding. The most common methods for calculating loan interest are simple interest and compound interest. Simple Interest: Simple interest is calculated using the following formula: Interest = Principal x Interest Rate x Time Here, the principal is the initial amount borrowed, the interest rate is the annual percentage rate (APR) expressed as a decimal, and the time is the length of the loan period in years. For example, if you borrow $10,000 with an annual interest rate of 5% for 3 years, the interest would be: Interest = $10,000 x 0.05 x 3 = $1,500 Compound Interest: Compound interest is calculated by adding the interest earned in each period to the principal balance before calculating the interest for the next period. The formula for compound interest is: A = P(1 + r/n)^(nt) Here, A is the future value of the loan, including both the principal and the interest P is the principal amount borrowed r is the annual interest rate as a decimal n is the number of times interest is compounded per year t is the time in years For example, if you borrow $10,000 with an annual interest rate of 5% compounded monthly for 3 years, the interest would be calculated as follows: A = $10,000 x (1 + 0.05/12)^(12 x 3) A = $10,000 x (1.004167)^(36) A ≈ $11,610.51 In this case, the interest accrued over the 3 years would be $1,610.51 ($11,610.51 - $10,000).