Do you need some extra money and are you considering taking out a loan from a bank or a non-bank lender? If you decide to do so, you will certainly come across the term “interest”. What exactly is it, how do you calculate it, and how much will you really end up paying?
Basic terms
You will certainly come across words such as principal, term, and rate. Now let us introduce the three most important terms for calculating interest.
Principal is the term for the amount you borrow. So, if you want to borrow 2,000,000 CZK (about 92,000 USD), the principal is that same amount.
Term is the length of time for which you take out the loan or credit. It is usually given in years, but with smaller amounts you will also come across weeks and months.
Rate is the annual interest set by the bank.
How to calculate interest
If you know all the terms given above, calculating interest is very simple. You multiply all 3 parameters together and divide the whole thing by one hundred. For annual interest (so called p.a. = per annum) we therefore use the equation: interest = (principal x rate x term) / 100.
For calculating interest over a period shorter than one year, the following formula is used: interest = (principal x rate x term) / (100 x 365). In this case you need to check with the loan provider for the exact method of counting days in a month.
Interest vs RPSN
We now know how to calculate interest, but the job is not done yet. RPSN stands for the Annual Percentage Rate of Charge (roční procentní sazba nákladů, RPSN). This is the figure that shows how much you will really overpay each year. A loan comes with plenty of fees, costs linked to the credit, insurance, and so on, and it is exactly these that push your overpayment higher. At ordinary banks, it differs from the interest rate by only a few tenths of a percent.
Interest calculators
If you are looking for the simplest possible way to arrive at the interest calculation, there are plenty of websites on the internet that carry out exactly these mathematical operations. These are simple calculators where you enter the details of your loan and they calculate the interest, the overpayment, the monthly instalment and so on by themselves.
You can never be too careful
If you live from payday to payday, I personally would not recommend taking out a loan just like that. If you still decide to do so, be sure to pay close attention to the fees that come with the loan. Building up a financial reserve before taking out the loan also helps you avoid minor complications. And if you run into trouble with repayments, contact the bank or non-bank lender with whom you have the loan straight away and ask for a “repayment holiday” or a change to your repayment schedule.
USD amounts are approximate, converted at the Czech National Bank rate of 21.80 CZK per USD on 2 October 2026.
