That contrasts with compound interest, where you also pay interest on any accumulated interest. Simple interest works in your favor as a borrower, since you're only paying interest on the original balance. What Financial Instruments Use Simple Interest? If you had a monthly rate of 5% and you'd like to calculate the interest for one year, your total interest would be $10,000 × 0.05 × 12 = $6,000. ($10,000 + $2,500 = $12,500.) You can also divide the value to determine how much interest you'd pay daily or monthly.Īlternatively, you can use the simple interest formula I=Prn if you have the interest rate per month. Now that you know your total interest, you can use this value to determine your total loan repayment required. Then, you'd multiply this value by the number of years on the loan, or $500 × 5 = $2,500. To start, you'd multiply your principal by your annual interest rate, or $10,000 × 0.05 = $500. You want to know your total interest payment for the entire loan. Let's review a quick example of both I=Prt and I=Prn.įor example, let's say you take out a $10,000 loan at 5% annual simple interest to repay over five years. For instance, if you wanted to calculate monthly interest taken on a monthly basis, then you would input the monthly interest rate as "r" and multiply by the "n" number of periods. Under this formula, you can calculate simple interest taken over different frequencies, like daily or monthly. Simple Interest for Different Frequencies For instance, if you wanted to calculate interest over six months, your "t" value would equal 0.5. Under this formula, you can manipulate "t" to calculate interest according to the actual period. P = Principal amount or the original balance.You may also see the simple interest formula written as: Our calculator will compute any of these variables given the other inputs. Simple Interest = Principal Amount × Interest Rate × Time The basic simple interest formula looks like this: In other words, future interest payments won't be affected by previously accrued interest. No matter how often simple interest is calculated, it only applies to this original principal amount. Generally, simple interest is set as a fixed percentage for the duration of a loan. Simple interest is interest that is only calculated on the initial sum (the "principal") borrowed or deposited. You might pay interest on an auto loan or credit card, or receive interest on cash deposits in interest-bearing accounts, like savings accounts or certificates of deposit (CDs). Interest is the cost you pay to borrow money or the compensation you receive for lending money. Click on Calculate and determine the Interest, daily, potential and actual.Related Interest Calculator | Compound Interest Calculator You may change the number of days for exact time span calculation but this is still based on a 365 day year for interest. The year is a financial year of 365 days, as opposed to a calendar year and may or may not be the "exact number of days" if multiple years are spanned. The calculation is done in years but you may enter either years or days. Then determine the length of the maturity period. Loan Amount (in dollars and cents) x Interest Rate x Maturity (in years) = Total InterestĮnter the amount of the loan and the simple interest rate. The Simple Interest Calculation Formula is: It is designed to calculate the simple interest on a loan over a finite time period. This calculator requires the use of Javascript enabled and capable browsers.
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