1. What is Simple Interest?

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. It's commonly used for short-term personal loans.

2. How Does the Calculator Work?

The calculator uses the simple interest formula:

Where:

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

Explanation: The formula calculates the total interest by multiplying the principal amount by the annual interest rate and the time period in years.

3. Importance of Interest Calculation

Details: Calculating interest helps borrowers understand the true cost of a loan and compare different loan options. It's essential for financial planning and budgeting.

4. Using the Calculator

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

5. Frequently Asked Questions (FAQ)

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., 7.5% APR = 0.075 decimal).

Q3: Can I use this for monthly payments?
A: This calculates total interest over the full term. For monthly payments, divide the time by 12 but consider that most loans use amortization.

Q4: What are typical personal loan interest rates?
A: Rates vary but typically range from 6% to 36% depending on credit score and loan terms.

Q5: Does this account for fees?
A: No, this only calculates interest. Actual loan costs may include origination fees and other charges.