Simple Interest Loan Calculator Amortization

Simple Interest Loan Formulas:

\[ \text{Total Interest} = P \times r \times t \] \[ \text{PMT} = \frac{P + \text{Total Interest}}{n} \]

Total Interest:

Monthly Payment (PMT):

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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, interest doesn't accumulate on previously accrued interest.

2. How Does the Calculator Work?

The calculator uses these formulas:

\[ \text{Total Interest} = P \times r \times t \] \[ \text{PMT} = \frac{P + \text{Total Interest}}{n} \]

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 based on the simple interest formula, then divided equally across all payments.

3. Understanding the Amortization Schedule

Details: The amortization schedule shows how each payment is split between principal and interest, and how the remaining balance decreases over time.

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 calculations, which is why paying extra reduces the total interest paid.

Q3: How does extra payment affect a simple interest loan?
A: Extra payments directly reduce the principal, which reduces the total interest since interest is calculated on the remaining principal.

Q4: What types of loans use simple interest?
A: Auto loans, personal loans, and some short-term business loans often use simple interest calculations.

Q5: Why does my amortization schedule show varying interest amounts?
A: Even with simple interest, each payment's interest portion is calculated based on the current balance, which changes as you pay down the principal.