Amortization Table Simple Interest Loan

Simple Interest Loan Formulas:

\[ \text{Total Interest} = P \times r_{\text{annual}} \times \left(\frac{n}{12}\right) \] \[ \text{Monthly Payment (PMT)} = \frac{P + \text{Total Interest}}{n} \]

Monthly Payment:

Total Interest:

Total Payment:

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1. What is a Simple Interest Loan?

A simple interest loan calculates interest based only on the original principal amount, unlike compound interest loans where interest accumulates on both principal and previously accrued interest. This results in a linear growth of interest over time.

2. How Does the Calculator Work?

The calculator uses simple interest formulas:

\[ \text{Total Interest} = P \times r_{\text{annual}} \times \left(\frac{n}{12}\right) \] \[ \text{Monthly Payment} = \frac{P + \text{Total Interest}}{n} \]

Where:

$ P $ — Principal loan amount ($)
$ r_{\text{annual}} $ — Annual interest rate (decimal)
$ n $ — Loan term in months

Explanation: The total interest is calculated upfront based on the simple interest formula, then divided equally across all payments.

3. Understanding the Amortization Table

Details: The amortization table shows the breakdown of each payment into principal and interest components, along with the remaining balance after each payment.

4. Using the Calculator

Tips: Enter the principal amount in dollars, annual interest rate as a percentage (e.g., 5 for 5%), and loan term in months. All values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: How is simple interest different from compound interest?
A: Simple interest is calculated only on the original principal, while compound interest is calculated on principal plus accumulated interest.

Q2: Are car loans typically simple interest loans?
A: Yes, most auto loans use simple interest, though some may have compound interest features.

Q3: Why does the interest portion stay constant in the table?
A: In simple interest loans, the interest is pre-calculated and divided equally across all payments.

Q4: Can I pay off a simple interest loan early?
A: Yes, early payment typically reduces total interest since interest is only charged for the time the money is borrowed.

Q5: What types of loans use simple interest?
A: Auto loans, personal loans, and some short-term business loans often use simple interest.