DEFINITION:
Simple interest is the cost of borrowing money without accounting for the effects of compounding.
In other words, simple interest only applies to the principal amount.
If a borrower takes money from a lender, an extra amount of money is paid back to the lender.
The borrowed money which is given for a specific period is called the principal.
The extra amount which is paid back to the lender for using the money is called the interest.
How do you Calculate Simple Interest?
To calculate simple interest, multiply the principal amount by the interest rate and the time.
The formula written out is "Simple Interest = Principal x Interest Rate x Time."
The simple interest calculator will show the accrued amount that includes both principal and the
interest. The simple interest calculator works on the mathematical formula:
A = P (1+rt)
P = Principal Amount
R = Rate of interest
t = Number of years
A = Total accrued amount (Both principal and the interest)
Interest = A - P.
Example of Simple Interest
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:
$5000 x 0.03 interest x 2 years = $300 simple interest
earned after two years
Likewise, if you borrow $500 from a friend at 3% per month for 6 months, your simple interest
calculation would be:
$500 x 0.03 interest x 6 months = $90 simple interest earned
after six months
Note that the interest rate (3%) appears as a decimal (0.03). To do your own calculations,
you will need to convert percentages to decimals. For example, to convert 3% into a decimal,
divide three by 100 to get 0.03.
How to Use the Gundi.net Simple Interest Calculator?
To use our simple interest calculator:
- Enter your starting balance (principal amount).
- Then enter the annual(yearly), monthly, weekly or daily rate of interest.
- You then, enter either a number of years, months, weeks or days that
you wish to calculate for.
- Finally, click the calculate button.
Once you click the 'calculate' button, the simple interest calculator will show you:
- The total interest earned.
- The final value (principal amount + accrued interest).
Note
The interest rate (r) and time period (t) are in the same time units.
For example if you select an interest rate that is to be calculated anually (yearly),
it is expected that you select "years" after inputing your time period.
The same applies for interest rate that is to be calculated monthly, you are
to select "months".
This is important for these interest calculations to work.