Understanding Simple Interest
Simple interest is a straightforward method of calculating the interest charged on a loan or earned on an investment. Unlike compound interest, which calculates interest on the principal amount plus any accumulated interest, simple interest is calculated only on the original principal amount.
How Simple Interest Works
The formula for calculating simple interest is:
Simple Interest (SI) = (P × R × T) / 100
- P represents the Principal amount (the initial amount of money borrowed or invested).
- R represents the Annual Interest Rate (the percentage of interest charged per year).
- T represents the Time Period (the duration for which the money is borrowed or invested, in years).
The total amount after the simple interest is applied is the principal plus the calculated simple interest: Total Amount = P + SI.
When is Simple Interest Used?
Simple interest is commonly used for:
- Short-term loans
- Calculating interest on savings accounts (though many now offer compound interest)
- Basic financial calculations to understand the cost of borrowing or the return on investment over a short period.
Example Calculation
Let's say you borrow $5,000 (Principal) at an annual interest rate of 5% (Rate) for 3 years (Time).
- Principal (P) = $5,000
- Annual Interest Rate (R) = 5%
- Time (T) = 3 years
Using the formula:
Simple Interest = ($5,000 × 5 × 3) / 100 = $750
The total amount you would repay after 3 years would be $5,000 (Principal) + $750 (Simple Interest) = $5,750.
Our calculator helps you quickly determine the simple interest and the total amount for any principal, rate, and time period you input.
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function calculateSimpleInterest() {
var principal = parseFloat(document.getElementById("principal").value);
var rate = parseFloat(document.getElementById("rate").value);
var time = parseFloat(document.getElementById("time").value);
var resultDiv = document.getElementById("result");
if (isNaN(principal) || isNaN(rate) || isNaN(time) || principal <= 0 || rate <= 0 || time <= 0) {
resultDiv.innerHTML = "Please enter valid positive numbers for all fields.";
return;
}
var simpleInterest = (principal * rate * time) / 100;
var totalAmount = principal + simpleInterest;
resultDiv.innerHTML =
"Simple Interest: