1. What is Simple Interest?

Simple interest is a method of calculating interest where the interest is computed only on the original principal amount throughout the loan term. It's commonly used for short-term loans and some home loan products.

2. How Does the Calculator Work?

The calculator uses the simple interest formula:

Where:

• \( P \) — Principal loan amount (USD)
• \( r \) — Annual interest rate (decimal)
• \( t \) — Time in years

Explanation: The formula calculates the total interest payable by multiplying the principal amount by the annual interest rate and the loan term in years.

3. Importance of Interest Calculation

Details: Understanding interest payments helps borrowers compare loan products, budget for repayments, and make informed financial decisions about home purchases.

4. Using the Calculator

Tips: Enter the principal amount in USD, annual interest rate as a decimal (e.g., 5% = 0.05), and time in years. All values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: Is simple interest common for home loans?
A: Most home loans use compound interest, but some short-term or alternative loan products may use simple interest.

Q2: How does this differ from compound interest?
A: Simple interest is calculated only on the principal, while compound interest is calculated on principal plus accumulated interest.

Q3: Can I use this for monthly payments?
A: For monthly payments, divide the annual rate by 12 and multiply years by 12 to get months.

Q4: What's not included in this calculation?
A: This doesn't include fees, insurance, or other loan costs that may be part of your total repayment amount.

Q5: How accurate is this for real loans?
A: While useful for estimation, actual loan terms may vary based on lender policies and compounding frequency.