Simple Interest Loan Calculator

Simple Interest Loan Formulas:

\[ \text{Total Payment} = P + (P \times r \times t) \] \[ \text{Monthly Payment (PMT)} = \frac{\text{Total Payment}}{t \times 12} \]

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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 (the original loan amount) throughout the loan term. Unlike compound interest, it doesn't charge interest on accumulated interest.

2. How Does the Calculator Work?

The calculator uses these simple interest formulas:

\[ \text{Total Payment} = P + (P \times r \times t) \] \[ \text{Monthly Payment} = \frac{\text{Total Payment}}{t \times 12} \]

Where:

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

Explanation: The total payment includes both the principal and the total interest paid over the loan term. The monthly payment divides this total by the number of months in the loan term.

3. Importance of Loan Calculation

Details: Understanding your total and monthly payments helps with budgeting and comparing different loan options. Simple interest loans are common for short-term loans and some personal loans.

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. 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 any accumulated interest.

Q2: Where are simple interest loans commonly used?
A: They're often used for short-term loans, some personal loans, and certain types of mortgages.

Q3: How does loan term affect payments?
A: Longer terms reduce monthly payments but increase total interest paid. Shorter terms have higher monthly payments but lower total interest.

Q4: Is APR the same as the interest rate in simple interest?
A: For simple interest loans, the APR (Annual Percentage Rate) typically equals the simple interest rate since there are no compounding periods.

Q5: Can I pay off a simple interest loan early?
A: Yes, and you'll save on interest since interest is calculated only on the outstanding principal for the actual time you had the loan.