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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 original principal amount throughout the loan period. Unlike compound interest, it doesn't account for interest on accumulated interest.
The calculator uses the simple interest formula:
Where:
Explanation: The calculator first reduces the principal by any extra payments made, then calculates interest on the remaining principal balance.
Details: Making extra payments on your car loan reduces the principal amount, which in turn reduces the total interest paid over the life of the loan. This can help you pay off your loan faster and save money.
Tips: Enter the original loan amount, annual interest rate, loan term in years, and any extra payments you plan to make. All values must be positive numbers.
Q1: How do extra payments affect my car loan?
A: Extra payments directly reduce your principal balance, which decreases the amount of interest you'll pay over the life of the loan.
Q2: Should I make extra payments on my car loan?
A: If you have extra funds available, making additional payments can save you money on interest and help you pay off your loan faster.
Q3: How is simple interest different from compound interest?
A: Simple interest is calculated only on the principal amount, while compound interest is calculated on both the principal and accumulated interest.
Q4: Are there any penalties for making extra payments?
A: Some lenders may charge prepayment penalties. Always check your loan agreement before making extra payments.
Q5: Can I use this calculator for other types of loans?
A: While designed for car loans, this calculator can be used for any simple interest loan where extra payments reduce the principal.