Simple interest is a form of interest commonly used for transactions such as auto loans, student loans or personal loans.Ī simple interest calculation takes a sum of money (principal) and calculates regular interest only on that original amount, without the effect of compounding. A = future value of the investment/loan.If you wish to calculate a figure for interest AND principal, the formula for this is A = P(1 + rt), where P is the initial principal, r is the interest rate and t is theĬalculate principal ( P) based upon future valueĬalculate interest rate as a percentage ( R)Ĭalculate time factor (how long it takes to reach a target figure) ( t) Advertisements Simple interest formula (principal + interest) You should use our compound interest calculator instead. So, if you're looking to work out compound interest, Interest is calculated on the already accumulated interest over time. Savings accounts earn compound interest, meaning that These simple interest calculations assume that interest is not compounded. Note that the interest rate (r) and time period (t) are in the same time units (years for the first calculation and months for the second). Likewise, if you borrow $500 from a friend at 3% per month for 6 months, your simple interest calculation would be: To give an example, if you wish to calculate simple interest on a $5,000 loan at a 3% annual interest rate for 2 years, your calculation would be: The number of periods you wish to calculate for. To calculate simple interest on a lump sum, multiply your lump sum figure by the interest rate per period (as a decimal) and then again by
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