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 annual interest rate, and the time period of the loan. It's commonly used for short-term personal loans.
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.
Details: Calculating interest helps borrowers understand the true cost of a loan and compare different loan offers. It's essential for financial planning and budgeting.
Tips: Enter the principal amount in USD, annual interest rate as a decimal (e.g., 0.05 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 accumulated interest.
Q2: How do I convert APR to decimal?
A: Divide the percentage by 100 (e.g., 5% becomes 0.05).
Q3: Can I use this for monthly calculations?
A: Yes, but convert months to years (e.g., 6 months = 0.5 years).
Q4: Does this include loan fees?
A: No, this calculates only the interest. Additional fees would increase the total loan cost.
Q5: What's a typical interest rate for personal loans?
A: Rates vary but typically range from 5% to 36% depending on creditworthiness and loan terms.