1. What is a Simple Interest Loan?

A simple interest loan calculates interest only on the principal amount throughout the loan term. Unlike compound interest, it doesn't accrue interest on previously accumulated interest.

2. How Does the Calculator Work?

The calculator uses these simple interest formulas:

Where:

• \( P \) — Principal amount (USD)
• \( r \) — Annual interest rate (decimal)
• \( t \) — Time in years
• \( n \) — Number of months (t × 12)

Explanation: The total interest is calculated upfront based on the principal, rate, and time. The monthly payment evenly distributes the total repayment (principal + interest) over the loan term.

3. Importance of Amortization Tables

Details: An amortization table shows the payment schedule, helping borrowers understand how each payment affects the loan balance and track repayment progress.

4. Using the Calculator

Tips: Enter the principal amount in USD, annual interest rate as a decimal (e.g., 0.05 for 5%), and loan term 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 original principal, while compound interest is calculated on the principal plus accumulated interest.

Q2: Are car loans typically simple interest loans?
A: Yes, most auto loans use simple interest, meaning you can save on interest by paying early.

Q3: How does loan term affect total interest?
A: Longer terms mean more total interest paid, as interest accumulates over more time.

Q4: Can I pay off a simple interest loan early?
A: Yes, with simple interest loans, early repayment reduces total interest paid.

Q5: What types of loans typically use simple interest?
A: Auto loans, personal loans, and some short-term business loans often use simple interest.