Home
Back
Simple Interest Formula:
| From: | To: |
Simple interest is a method of calculating the interest charge on a loan or investment based on the original principal amount. Unlike compound interest, simple interest doesn't accumulate on previously earned interest.
The calculator uses the simple interest formula:
Where:
Explanation: The formula calculates interest earned or paid based only on the original principal, without considering any accumulated interest from previous periods.
Details: Simple interest calculations are fundamental in personal finance, helping individuals understand the cost of borrowing or the return on investments. They're commonly used for short-term loans, car loans, and some types of savings accounts.
Tips: Enter the principal amount in dollars, annual interest rate as a percentage, and time period in years. All values must be positive numbers.
Q1: What's the difference between simple 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: Where is simple interest commonly used?
A: Simple interest is often used for car loans, short-term personal loans, and some types of savings accounts or certificates of deposit.
Q3: How does time affect simple interest?
A: Simple interest increases linearly with time - double the time period results in double the interest, assuming the same principal and rate.
Q4: Can simple interest be calculated for partial years?
A: Yes, you can use decimal values for time (e.g., 0.5 for 6 months, 0.25 for 3 months).
Q5: Is simple interest better for borrowers or lenders?
A: Simple interest is generally better for borrowers compared to compound interest, as it results in lower total interest payments over time.