Simple Interest Calculator
Investment Results
Total Invested: $10000.0
Total Returns: $4500.0
Final Amount: $14500.0
CAGR: 7.7%
Understanding Simple Interest
| Parameter | Description |
|---|---|
| Principal Amount | Initial sum of money invested or borrowed |
| Time Period | Duration for which money is lent/borrowed (in years/months) |
| Annual Interest Rate | Percentage of principal charged as interest annually |
What is Simple Interest?
Simple interest is calculated only on the original principal amount. It's commonly used for:
- Short-term personal loans
- Car loans
- Certificates of Deposit (CDs)
- Some types of bonds
Key Characteristics
Main features of simple interest:
- Interest doesn't compound over time
- Linear growth pattern
- Easier to calculate than compound interest
- Common in short-term financing
When to Use Simple Interest
Appropriate scenarios:
- Short-term loans (<1 year)
- Auto loans
- Installment loans
- Certain investment products
Advantages
Benefits of simple interest:
- Predictable payments
- Lower total interest over time
- Easy to understand and calculate
- Transparent cost structure
Simple vs Compound Interest
Key differences:
| Factor | Simple | Compound |
| Interest Basis | Principal only | Principal + Accumulated Interest |
| Growth | Linear | Exponential |
| Total Interest | Lower | Higher |
Real-World Applications
Common uses include:
- Personal loans between individuals
- Short-term business loans
- Some mortgage products
- Deposit certificates
- Credit card cash advances
Calculation Example
If you borrow $10,000 at 5% for 3 years:
- Principal (P): $10,000
- Rate (R): 5% (0.05)
- Time (T): 3 years
- Interest = 10,000 × 0.05 × 3 = $1,500
- Total Repayment: $11,500
Important Considerations
When using simple interest:
- Verify calculation method in contracts
- Confirm payment schedule
- Check for prepayment penalties
- Understand late payment terms
- Compare APR with compound options