1. What is Simple Interest?

Simple interest is a method of calculating interest charge on a loan where interest is calculated only on the principal amount (the original sum borrowed or invested).

2. How Does the Calculator Work?

The calculator uses the simple interest formula:

Where:

• \( P \) — Principal amount (USD)
• \( r \) — Annual interest rate (in decimal form)
• \( t \) — Time period in years

Explanation: The formula calculates interest by multiplying the principal by the rate and then by the time period.

3. Importance of Interest Calculation

Details: Accurate interest calculation is crucial for loan agreements, promissory notes, and financial planning to understand the true cost of borrowing.

4. Using the Calculator

Tips: Enter principal in USD, interest rate as decimal (e.g., 0.05 for 5%), and time in years. All values must be valid (principal > 0, rate ≥ 0, time > 0).

5. Frequently Asked Questions (FAQ)

Q1: What's the difference between simple and compound interest?
A: Simple interest is calculated only on the principal, while compound interest is calculated on principal plus accumulated interest.

Q2: How do I convert APR to decimal?
A: Divide the percentage by 100 (e.g., 5% becomes 0.05).

Q3: Can this calculator be used for partial years?
A: Yes, enter time as a fraction (e.g., 0.5 for 6 months).

Q4: When is simple interest typically used?
A: Often used for short-term loans, promissory notes, and some types of bonds.

Q5: Does this account for payment frequency?
A: No, this calculates total interest over the entire period regardless of payment schedule.