Simple Interest Calculator calculates Simple Interest (S.I.) on given principal, interest rate, and duration. You can use it for auditing purposes.
In order to master any type of finance, it is essential to understand simple interest as a fundamental concept. There are different ways to calculate simple interest, including calculators or figuring it out using simple mathematical formulae.
When you understand how simple interest works, you get accustomed to better decisions financially that help you save your money and time. To simplify, interest is the amount of fee paid in addition to the original amount. Interest is counted even if it is borrowed, invested, or loaned to someone.
Simple interest is defined by the amount you pay on a loan or the income that you will earn upon a deposit of any sort.
A few terminologies one should be familiar with to understand Simple interest better:
Deposition of money - Accounts through which you need to pay interest, such as a saving account, make you do so because you make money available for the banks. Through this, the bank can lend money to others as well.
Borrowing money - When you return the money, you need to pay an additional amount for the number of days you kept it for. The extra amount paid represents the cost of borrowing from someone.
Lending someone money - Before you lend money to someone, you need to set a rate for you to earn interest from it. You do this to earn some money when you lend one of your acquaintances cash.
If you don't feel like manually doing all of the calculations outlined above, you can use a scientific calculator or ask our calculator to solve these equations for you. Open the Simple interest calculator and follow the steps outlined below:
Firstly, choose which currency you want to calculate your simple interest amount in.
Once selected, enter your principal amount.
Choose your annual interest rate
The last step is to choose the time period in which you'll be paying this interest.
After entering the above values, click on the calculate option shown below, and your simple interest will be calculated within a few seconds. The final amount will be segregated into two parts: your interest amount and your total amount.
You will have to type in the equation for scientific calculator users by substituting the formula's words with numbers. For example, type in 200 x .07 x 3 and press the "=" sign to get the answer.
The formula given below is the key to simple interest. You use this formula for both methods to find out the simple interest in any situation.
Formula: Principal * rate * time = interest
For example, let's say you invest $200 at a 7% annual rate for a year. You need to find out 3 essential things before making a calculation:
The principal: $200
The rate: 7%
The amount of time: One year (12 months)
The calculation for simple interest would be:
$200 x .07 x 1 = $140
So, this situation's simple interest would be $140 after manually using the formula given above.
Notice that the rate of interest (7%) will appear as a decimal (.07). To do your calculations manually, you will have to convert the percentage into a decimal. A simple way to remember to convert it is to see the word percent as "per 100." You convert a percentage into a decimal by dividing it by the number 100.
Or, move the decimal point two times to the left of the original number percent. For example, to convert 7% into a decimal number, divide seven by 100 to get .07.
In case you need to calculate simple interest for more than a year, you only need to change the time to the one needed. Use the principal interest from the first year, multiplied by the interest rate along with the total number of years.
$200 x .07 x 3 = $420
The principal: $200
The rate: 0.7
The amount of time: 3 years
As seen above, the amount of time changed from one to three years as per the situation.
Knowing how to calculate simple interest benefits people when they're the borrowers. It enables them to assure that the overall amount is relatively low as compared to compound interest. Simple interest real-life implications include:
Car loans are amortized every month.
Retailer installment loans are calculated every month as well.
Certificates of deposits, also referred to as CDs, have an essential role in an interest amount set on a specific date.
Simple interest: The sum that is paid back after using the borrowed money over a particular period of time.
Compound interest: The amount of money made aside from the original investment due to the time frame's growth.
Simple interest: S.I. = (P × T × R) ⁄ 100
Compound interest: C.I. = P (1+R⁄100) t – P
Simple interest: When compared to compound interest, the amount returned is lesser.
Compound interest: There is a higher amount of return.
Simple interest: The principal amount remains constant at all times.
Compound interest: During the borrowing or returning period, the principal will keep varying.
Simple interest: The growth is shown to remain uniform throughout this method.
Compound interest: There is rapid growth when using this method.
Simple interest: The interest charged is only for the principal amount.
Compound interest: The interest charged is not only for the principal amount but also includes the accumulated interest.
Note that Simple Interest and Compound Interest do not come into each other. Compounding is a repetitive process of either paying or earning interest. This adds the interest to the principal balance and eventually adds more interest in the next period because of the increased amount of balance.
There are two methods for calculating simple interest. Each method uses the same formula, but one is done through a calculator while the other one is done manually. The term 'simple' means using the most superficial way to calculate and find out the interest. Once you understand how to calculate simple interest, you can continue to learn different solutions to calculations like annual percentage rate (APR), annual percentage yield (APY), and compound interest.