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Simple Interest Per Month Formula:
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Simple interest per month calculates the monthly interest earned or paid on a principal amount based on a fixed annual interest rate. Unlike compound interest, simple interest is calculated only on the original principal.
The calculator uses the simple interest formula:
Where:
Explanation: The formula divides the annual interest by 12 to get the monthly amount. For percentage inputs, the rate is converted to decimal form before calculation.
Details: Calculating monthly interest helps individuals and businesses understand their monthly interest obligations for loans or earnings from savings. It's essential for budgeting and financial planning.
Tips: Enter the principal amount in dollars and the annual interest rate as a percentage. For example, for 5% interest, enter "5" not "0.05".
Q1: How is simple interest different from compound interest?
A: Simple interest is calculated only on the original principal, while compound interest is calculated on the principal plus accumulated interest.
Q2: Can this calculator be used for both loans and savings?
A: Yes, the same formula applies to both scenarios - whether you're paying interest on a loan or earning interest on savings.
Q3: Is the monthly interest calculation accurate for all loan types?
A: This calculation works best for simple interest loans. For amortized loans or compound interest scenarios, different calculations are needed.
Q4: Why divide by 12 in the formula?
A: We divide by 12 to convert the annual interest rate to a monthly rate since there are 12 months in a year.
Q5: How does the interest rate input work?
A: Enter the annual percentage rate (APR) as a whole number. The calculator automatically converts it to decimal form for the calculation.