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Simple Interest Formula:
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Simple interest is a method of calculating interest on a loan where interest is calculated only on the initial principal amount, not on any accumulated interest. This differs from compound interest where interest is calculated on both the principal and accumulated interest.
The calculator uses the simple interest formula:
Where:
Explanation: The formula calculates how much interest you'll pay based on the original loan amount, the interest rate, and the length of the loan term.
Details: Understanding interest calculations helps borrowers make informed financial decisions, compare loan options, and plan for repayment. In Canada, lenders are required to disclose interest costs clearly.
Tips: Enter the principal amount in CAD, the annual interest rate as a percentage (e.g., enter 5 for 5%), and the time period in years. All values must be positive numbers.
Q1: Is simple interest common in Canada?
A: While many loans use compound interest, some short-term loans and certain financial products in Canada still use simple interest calculations.
Q2: How does this differ 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.
Q3: Are there regulations for interest rates in Canada?
A: Yes, Canada has criminal interest rate laws that cap rates at 60% annually, and each province may have additional regulations.
Q4: Can I use this for mortgage calculations?
A: Most Canadian mortgages use compound interest, so this calculator would not be appropriate for standard mortgage calculations.
Q5: What's the advantage of simple interest loans?
A: Simple interest loans are generally easier to understand and calculate, making them more transparent for borrowers.