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The Simple Interest Calculator calculates the simple interest and total interest balance using the simple interest formula.
Borrowing money isn’t free; there is a cost associated with it. Simple interest is a method of calculating the accumulated interest for the principal lent. It is calculated on the principal only without including the effect of compounding. You could use the Compound Interest Calculator to learn about compound interest and how to calculate it.
Using the Simple Interest calculator, you can find the simple interest, interest rate, principal, or period by inputting all the other variables required for the calculation.
The variables in the Simple Interest calculator are:
Principal (P)
The amount borrowed.
Rate of Interest (R)
The interest rate agreed upon while borrowing the Principal.
Time Period (T)
The Principal borrowed for a specific period.
Simple Interest (SI)
The Simple Interest accumulated for the respective principal (P) at the interest rate (R) and Time period (T).
Total Interest (TI)
The total simple interest accumulated over the period of the debt.
As the name suggests, simple interest is a simple method of calculating interest for some principal amount at an agreed-upon interest rate and period without considering the compounding effect.
You can think of the interest rate as the cost of borrowing the principal amount. If the lender lends you the principal, they will charge you an interest rate. It could be either simple interest or compound interest, which you have to pay periodically to keep the amount that you have borrowed.
Simple Interest: This type of calculating interest usually applies to automobile or short-term loans; sometimes, mortgages also use a simple interest rate.
Most banks currently use compound interest for their loans, which allows them to make more money from their customers. Learn more about compound interest and how to calculate it using our compound interest calculator.
We calculate the Simple interest for a year with the following formula:
Where,
P → Principal Amount.
It is the amount that is initially borrowed from the lender.
R → Rate of Interest in % Per Annum
This is the rate of interest at which the principal amount is being lent to the borrower.
T → Time Period in Years
This is the duration for which the principal amount is given to the borrower.
While calculating simple interest, the principle remains the same. Unlike compound interest where we add the interest of the previous years to the principal to calculate the interest for the next year.
To calculate the total amount, you have to use the following formula.
Let us look at the formula for calculating simple interest for months.
Where,
P → Principal Amount
R → Rate of Interest in % Per Annum
m → Time Period in Months
Let us look at the formula for calculating simple interest for days.
Where,
P → Principal Amount
R → Rate of Interest in % Per Annum
d → Time Period in Days (Non-leap year)
One of its major advantages is the simplicity of calculating simple interest. The formula, as shown above, is easy to use and understand.
The fixed payments and straightforward structure of simple interest loans make financial planning easier for borrowers. This simplicity helps borrowers set aside funds for repayments, avoiding the complexity and potential debt traps associated with variable interest payments.
Because simple interest only accrues on the principal, borrowers can save money compared to loans with compound interest, where interest on previously accumulated interest can significantly increase the total cost of borrowing.
Person A lends $10,000 to Person B for 1 year at a Simple Interest Rate of 6%.
The interest for 1 year will be
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