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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 principal amount, not on any previously accumulated interest. It's commonly used for short-term loans and personal lending.
The calculator uses the simple interest formula:
Where:
Explanation: The formula calculates the interest amount by multiplying the principal by the interest rate and time period, then dividing by 100 to convert the percentage rate to a decimal equivalent.
Details: Accurate interest calculation helps borrowers understand the true cost of borrowing, compare different loan offers, and plan their repayment strategy effectively.
Tips: Enter the principal amount in your local currency, the annual interest rate as a percentage, and the loan duration 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 both the principal and accumulated interest.
Q2: Is simple interest commonly used for cash loans?
A: Simple interest is typically used for short-term personal loans, auto loans, and some installment loans, while compound interest is more common for mortgages and long-term investments.
Q3: How does loan duration affect interest?
A: The longer the loan duration, the more interest you'll pay, as interest is directly proportional to time.
Q4: Can interest rates change during the loan term?
A: For fixed-rate loans, the interest rate remains constant. For variable-rate loans, the rate can change based on market conditions.
Q5: Are there any additional fees not included in this calculation?
A: This calculator only computes interest. Real loans may include additional fees such as origination fees, late payment fees, or prepayment penalties.