How to calculate Simple Interest Payment?

To calculate Simple Interest Payment is easy to get and can be get in low interest rates. Simple interest loan can be either taken as home loan or personal loan.

The loan is for limited period and generally offers you low interest rate.  Although you can use a calculator to determine a simple interest payment, understanding what’s behind this calculation is a useful money management skill.

Interest Payment

The Formula to Calculate Simple Interest Rate

The simple interest formula is I = PRT

I is the amount of interest expressed as a dollar value

P is the principal

R is the annual rate of interest

T is the loan term expressed in years or a fraction of a year

For example, if you borrow $5,000 at a 5 percent annual interest rate for one year, you’ll pay $5,250 — $5,000 x 0.05 x 1 — on the maturity date.

In the same way, if you borrow $3,000 at a 5 percent annual interest rate for six months, you’ll pay $3,075 — $3,000 x 0.05 x 6/12 — on the maturity date.

The formula is P/loan term in months.

The monthly payment on a 12-month, $5,000 loan will be $5,000/12 or $416.67 each month.

The monthly payment on a six-month, $3,000 loan will be $3,000/6 or $500 each month.

The monthly interest on a $5,000 loan at a 5 percent annual interest rate for one year will be $5,000 x 0.05 x 1/12 or $20.83.

The monthly interest on a $3,000 loan at a 5 percent annual interest rate for six months will be $3,000 x 0.05 x 1/12 or $12.50.

Add the monthly principal and interest payment to get the monthly loan payment:The monthly loan payment on a $5,000 at a 5 percent annual interest rate for one year will be $416.67 + 20.83 or $437.50.The monthly loan payment on a $3,000 at a 5 percent annual interest rate for six months will be $500 + $12.50 or $512.50. Calculate simple interest payment is easy.

Leave a Reply

Your email address will not be published. Required fields are marked *