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 does not accumulate on previously earned interest.
The calculator uses the simple interest formula:
Where:
Explanation: The formula calculates interest based only on the original principal amount, without considering any accumulated interest from previous periods.
Details: Simple interest calculations are fundamental in personal finance, banking, and investing. They help determine loan payments, investment returns, and savings growth for short-term periods or when interest doesn't compound.
Tips: Enter the principal amount in currency units, 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: When is simple interest typically used?
A: Simple interest is commonly used for short-term loans, car loans, some personal loans, and certain types of investments.
Q3: How does time affect simple interest?
A: Interest increases linearly with time - double the time period will double the interest amount, 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.