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 loans, the interest doesn't compound over time, making the calculations straightforward.

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)
• \( PMT \) — Monthly payment (USD)

Explanation: The total interest is calculated upfront based on the principal, rate, and time. The monthly payment is then determined by dividing the total repayment (principal + interest) by the number of months.

3. Understanding the Amortization Schedule

Details: The amortization schedule shows how each payment is split between principal and interest. For simple interest loans, the interest portion remains constant throughout the loan term.

4. Using the Calculator

Tips: Enter the principal amount in USD, annual interest rate as a decimal (e.g., 5% = 0.05), and loan term in years. The calculator will generate the payment schedule.

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: Are car loans typically simple interest?
A: Many auto loans use simple interest, but some may use other calculation methods - always check your loan terms.

Q3: Why does my interest payment stay the same?
A: In simple interest loans, the interest is calculated upfront and divided equally across all payments.

Q4: Can I pay off a simple interest loan early?
A: Yes, and you may save on interest since interest is calculated based on actual time the principal is outstanding.

Q5: What types of loans use simple interest?
A: Short-term loans, some auto loans, and personal loans often use simple interest calculations.