Simple interest factors
What is the interest rate?
Interest is a charge that a borrower pays for the use of an asset, which may include consumables, cash, vehicles, or property. An interest rate is an amount of money that a lender charges a borrower based on a certain percentage taken as part of the principal. This percentage is taken annually and is called the annual percentage rate, or it can be calculated as a percentage of the amount earned from a bank or credit union as part of a deposit account.[١]
What is simple interest?
Simple interest is a quick and easy way to calculate Interest on the loan taken, and this type of interest applies On short-term loans or car loans and sometimes used in mortgages, simple interest benefits consumers who pay their loans on time or early each month.[٢]
What are simple interest factors?
There are three main factors on which simple interest depends:[٣]
The basic amount
This factor expresses the basic amount that has been borrowed and is borrowed either from a bank, a lender or any institution, and this amount is the basic value that the borrower must pay and the additional compensation is added to it when borrowing.
interest rate
The interest rate is a percentage that determines the value of the amount that will be added on top of the borrowed amount. This percentage ranges from 1% to 10% and sometimes may exceed this limit by agreement between the two parties.
Time period
It is the period of time that starts from the beginning of the period of time in which the money was borrowed until the end of the period of time in which the principal amount must be repaid plus the agreed interest. This factor is taken into consideration and with great caution, especially in the case of loans with high amounts.
Why is simple interest called simple interest?
Simple interest is called that because it does not take into account the principle of compounding amounts and does not depend on the principle of calculating interest on interest.[٢]
How is simple interest calculated?
Simple interest is calculated according to a simple equation:[٤]
Simple interest = Time period x principal x interest rate.
What are the types of interest?
There are several types of interest, including:[٥]
- Compound interest.
- Simple interest.
- Fixed interest.
- Variable interest.
- Annual interest.
- The main benefit.
- Discounted interest.
What is the difference between simple interest and compound interest?
Simple interest and compound interest are two basic financial concepts. The difference between them is that simple interest is a fixed percentage of the principal amount added on top of the amount that must be paid over a specific period of time, while in compound interest it accumulates and is added to the accumulated interest of previous periods of time. On this basis, borrowers must pay the interest on the interest in addition to the original principal.[٦][٧]
the reviewer
- ↑ “Interest Rate”, investopedia, Retrieved 5/1/2022. Edited.
- ^ A for “Simple Interest”, investopedia, Retrieved 5/1/2022. Edited.
- ↑ “Simple Interest Definition”, ipracticemath, Retrieved 5/1/2022. Edited.
- ↑ “What Is Simple Interest?”, thebalance, Retrieved 5/1/2022. Edited.
- ↑ “Types of Interest”, wallstreetmojo, Retrieved 5/1/2022. Edited.
- ↑ “Learn About Simple Interest and Compound Interest”, investopedia, Retrieved 5/1/2022. Edited.
- ↑ “Simple Interest vs. Compound Interest: The Main Differences”, investopedia, Retrieved 5/1/2022. Edited.
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