Home
Back
Simple Interest Formula:
| From: | To: |
Simple interest is a method of calculating the interest charge on a loan or the return on a deposit based on the original principal amount. It does not compound, meaning interest is not added to the principal for subsequent calculations.
The calculator uses the simple interest formula:
Where:
Explanation: The formula calculates the interest earned or paid based on the original principal amount over a specific time period at a given annual rate.
Details: Simple interest calculation is crucial for understanding the cost of borrowing money or the return on savings and investments. It helps individuals and businesses make informed financial decisions and compare different financial products.
Tips: Enter the principal amount in your local currency, the annual interest rate as a percentage, and the 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 the principal plus any accumulated interest.
Q2: Can simple interest be calculated for periods less than a year?
A: Yes, you can convert the time period to fractional years (e.g., 6 months = 0.5 years, 90 days = 90/365 years).
Q3: Is simple interest commonly used in banking?
A: Simple interest is typically used for short-term loans, car loans, and some types of savings accounts, while compound interest is more common for long-term investments and mortgages.
Q4: How does the interest rate affect the simple interest amount?
A: The simple interest amount increases proportionally with the interest rate - doubling the rate will double the interest amount, assuming principal and time remain constant.
Q5: Can I calculate the total amount (principal + interest) using this formula?
A: Yes, the total amount (A) can be calculated as A = P + SI, where SI is the simple interest calculated using the formula.