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Simple Interest Formula:
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Simple interest is a method of calculating interest where the interest is computed only on the principal amount throughout the entire period, without compounding. It's commonly used for short-term loans and investments.
The calculator uses the simple interest formula:
Where:
Explanation: The formula calculates the interest earned or paid based on the original principal amount, without considering any accumulated interest from previous periods.
Details: Simple interest calculation is essential for understanding loan repayments, investment returns, and financial planning. It provides a straightforward way to determine interest costs or earnings over time.
Tips: Enter the principal amount in ₹, annual interest rate as a percentage, and time period in years. All values must be positive numbers.
Q1: What's the difference between simple interest and compound interest?
A: Simple interest is calculated only on the principal amount, while compound interest is calculated on both the principal and accumulated interest from previous periods.
Q2: When is simple interest typically used?
A: Simple interest is commonly used for short-term loans, car loans, and some types of savings accounts where interest doesn't compound.
Q3: How do I convert annual interest rate to decimal form?
A: Divide the percentage rate by 100. For example, 5% becomes 0.05 in decimal form.
Q4: Can simple interest be calculated for partial years?
A: Yes, you can use fractional years (e.g., 0.5 for 6 months, 0.25 for 3 months) in the time parameter.
Q5: Is simple interest better than compound interest for borrowers?
A: Generally yes, as simple interest results in lower total interest payments compared to compound interest over the same period.