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, the interest rate, and the time period.
The calculator uses the simple interest formula:
Where:
Explanation: The formula calculates the total interest by multiplying the principal amount by the annual interest rate and the time period in years.
Details: Understanding interest calculations helps borrowers estimate total loan costs and compare different loan options.
Tips: Enter principal in USD, annual interest rate as decimal (e.g., 5% = 0.05), and time in years. All values must be positive.
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 accumulated interest.
Q2: Is simple interest common for housing loans?
A: Most housing loans use compound interest, but simple interest calculations are useful for understanding basic interest concepts.
Q3: How do I convert APR to decimal?
A: Divide the percentage by 100 (e.g., 5% = 5/100 = 0.05).
Q4: What if I want monthly payments?
A: For monthly calculations, convert the time to years (e.g., 6 months = 0.5 years).
Q5: Does this account for additional fees?
A: No, this calculates only the interest portion. Actual loan costs may include additional fees.