1. What is Simple Interest?

Simple interest is a method of calculating interest charge on a loan where interest is calculated only on the original principal amount throughout the loan term.

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 period in years

Explanation: The formula calculates the total interest you'll pay by multiplying the principal amount by the interest rate and the time period.

3. Importance of Interest Calculation

Details: Understanding your total interest helps in budgeting loan repayments, comparing loan offers, and making informed financial decisions.

4. Using the Calculator

Tips: Enter principal amount in USD, annual interest rate as decimal (e.g., 5% = 0.05), and time 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, while compound interest is calculated on 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: Does this calculator account for monthly payments?
A: No, this calculates total interest over the entire loan term. For monthly payments, use an amortization calculator.

Q4: What if my loan term is in months?
A: Convert months to years by dividing by 12 (e.g., 18 months = 1.5 years).

Q5: Are there loans that use simple interest?
A: Yes, some personal loans and auto loans use simple interest, though most modern loans use compound interest.