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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.
|Loan Total Payable|
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:
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:
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:
This can further be divided by the months of the term to get the monthly instalment amount:
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.
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:
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