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 where interest is calculated on both principal and accumulated interest.

2. How Does the Calculator Work?

The calculator uses these formulas:

Where:

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

3. Understanding Amortization

Details: The amortization schedule shows how each payment is split between principal and interest, and how the loan 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. The calculator will generate a detailed amortization schedule.

5. Frequently Asked Questions (FAQ)

Q1: How is simple interest different from compound interest?
A: Simple interest is calculated only on the original principal, while compound interest is calculated on principal plus accumulated interest.

Q2: What types of loans use simple interest?
A: Many short-term loans and some personal loans use simple interest. Most mortgages and car loans use compound interest.

Q3: Why does my early payment have more interest than principal?
A: Since interest is calculated on the outstanding balance, early payments have more interest because the balance is higher.

Q4: Can I pay off a simple interest loan early?
A: Yes, and you'll save on interest since it's calculated daily on the current balance.

Q5: How accurate is this calculator?
A: It provides accurate estimates for simple interest loans, but actual loan terms may vary based on lender policies.