Simple interest is a basic method of calculating interest where interest is earned or charged only on the initial principal amount. Unlike compound interest, the interest earned does not earn additional interest over time.
SI = P × R × T
Where:
Always compare interest rates from different lenders before making a decision. Even a small difference in interest rate can lead to significant savings.
Longer loan terms mean more interest paid overall. Consider if a shorter term with higher payments might be more beneficial.
Besides interest, look for any processing fees, prepayment penalties, or other charges that might affect the total cost.
Simple interest is calculated only on the principal amount, while compound interest is calculated on the principal and accumulated interest from previous periods.
Simple interest can be calculated daily, monthly, or yearly, depending on the terms of the loan or investment agreement.
Yes, simple interest loans can often be paid off early, potentially saving on interest charges. However, check for any prepayment penalties.
Let's look at some practical examples: