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Borrowing money is easy in today's world, but it is important that you know how much it is actually costing you to borrow that money. Simple interest is a very common word in the finance world. The functionality of simple interest is not limited to loans, it has an impact on investments like fixed deposits as well as savings accounts.

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Interest is generally applied to borrowings like, auto loans and short-term personal loans. Some mortgage products as well may follow the simple interest rate. The interest rate is generally calculated on a daily basis, so it benefits the loan borrowers who pay their installments in time. Let's explore the manual calculation process and the method to calculate the interest using an online calculator.

The process to calculate the interest manually and with Simple Interest Loan Calculator

You can calculate the interest by using the following formula:

Simple Interest = P x I x N

Where:

**P**= Principal or loan amount**I**= Annual interest rate percentage**N**= Term as in time period in years

This can be better understood with example using Great British Pounds (GBP):

Let's say you are taking a loan for £50,000 on a simple interest rate of 7%, for 3 year term, the equation will go as follows:

Interest = 50,000 x 7% X 3 = 10,500

This is the value of interest, and to calculate the value of a simple interest loan you have to add this amount to the principal amount:

£50,000 + £10,500 = £60,500 (interest loan)

This can further be divided by the months of the term to get the monthly instalment amount:

Monthly installment = £60,500 / 36 = £1680. 55 (EMI)

The other way to calculate the simple interest rate is to just enter the above values into the calculator. You may use the online Simple Interest Loan Calculator created by iCalculator for simpler calculations. Using the calculator can benefit you in several ways:

On the basis of inputs made by you the calculator will provide you with values of Loan total payable & the monthly payment without following the above mentioned steps which saves your time and effort.

The calculator will show you the results that can be used to compare different products offered by various banks and financial institutions. You just have to edit the values and get instant results and consider if you need to shop around some more to get a better deal.

There are some factors that affect these calculations, let's find out what are these factors and how they affect the interest calculations.

**Principal amount:**This is the defining factor of simple interest loan calculations, This is the actual value or the amount that was borrowed or the initial amount that you have invested in a fixed deposit. Higher principal amount generates more interest payable or earned.**Tenor:**This refers to the term of the loan. Similar to the principal amount, this as too results in higher simple interest value with higher term. The loan tenor is multiplied by the percentage value obtained by multiplying the principal amount with interest rate percentage.

Simple interest is not to be confused with a compound rate of interest, though they both are kind of interests and are used for loans and deposits as well, but they are quite different in nature, let's discuss the differences between the two concepts.

The simple and compounding rate of interest is different in following ways:

- Simple interest is calculated on the total term based on the total principal amount, whereas compounding interest is calculated on the total principal amount, but per period (monthly, quarterly, annually, semi annually etc).
- The calculation of simple interest is easier in comparison to the complex calculations of the compounding rate of interest.
- The accumulation of interest is slow in simple interest, however the compounding means the interest is earned on interest hence the accumulation of interest is fast.
- Simple interest is better when you are borrowing the money, however, when investing, you should look for the compound rate of interest because it will be more profitable.
- The accumulation of interest is not added to the principal in simple interest calculation, however, the compounding rate of interest is calculated on the principal plus the previously earned interest.
- The interest rate increased with the frequency of compounding, whereas simple interest will not be increased even if it is calculated periodically.

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