Simple Interest Formula:
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Simple interest is a method of calculating the interest charge on a loan 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 the interest by multiplying the principal amount by the interest rate and the time period.
Details: Understanding interest calculations helps borrowers know exactly how much extra they'll pay on a loan and allows lenders to determine appropriate interest charges.
Tips: Enter the principal amount in dollars, interest rate as a percentage (e.g., 5 for 5%), 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, and some personal loans.
Q3: How do I convert annual interest rate to monthly?
A: Divide the annual rate by 12. For example, 12% annual becomes 1% monthly.
Q4: What if my time period is in months?
A: Convert months to years by dividing by 12 (e.g., 6 months = 0.5 years).
Q5: Does this calculator work for partial years?
A: Yes, you can enter fractional years (e.g., 1.5 for 1 year and 6 months).