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Simple Interest Formula:
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The Simple Interest Loan Calculator calculates the monthly interest-only payment for simple interest loans. It provides a straightforward way to determine the interest portion of loan payments without principal reduction.
The calculator uses the simple interest formula:
Where:
Explanation: The formula calculates only the interest portion of the payment, which remains constant each month as the principal doesn't decrease in interest-only loans.
Details: Accurate interest calculation is crucial for budgeting loan payments, understanding the true cost of borrowing, and making informed financial decisions about interest-only loan products.
Tips: Enter principal amount in currency, monthly interest rate as a decimal (e.g., 0.05 for 5%). All values must be valid (principal > 0, rate between 0-1).
Q1: What is an interest-only loan?
A: An interest-only loan requires paying only the interest for a specified period, after which principal payments begin or the loan must be repaid.
Q2: How does simple interest differ from compound interest?
A: Simple interest is calculated only on the principal amount, while compound interest is calculated on both principal and accumulated interest.
Q3: When are interest-only loans typically used?
A: Commonly used for short-term financing, bridge loans, and some mortgage products where lower initial payments are desirable.
Q4: What are the risks of interest-only loans?
A: The main risk is payment shock when the interest-only period ends and higher payments (including principal) begin.
Q5: Can this calculator be used for compound interest loans?
A: No, this calculator is specifically designed for simple interest, interest-only payments. Compound interest requires a different calculation approach.