1. What is Loan Interest Calculation?

Loan interest calculation determines the amount of interest payable on a loan based on the principal amount, interest rate, and time period. It helps borrowers understand the cost of borrowing money.

2. How Does the Calculator Work?

The calculator uses the simple interest formula:

Where:

• \( Principal \) — Initial loan amount in dollars
• \( Rate \) — Interest rate expressed as a decimal
• \( Time \) — Time period in years

Explanation: This formula calculates simple interest where interest is calculated only on the principal amount, not on accumulated interest.

3. Importance of Interest Calculation

Details: Understanding interest calculations helps borrowers make informed financial decisions, compare loan offers, and plan for repayment.

4. Using the Calculator

Tips: Enter principal amount in dollars, interest rate as a decimal (e.g., 0.05 for 5%), and time in years. All values must be positive numbers.

5. Frequently Asked Questions (FAQ)

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

Q2: How do I convert percentage rate to decimal?
A: Divide the percentage by 100. For example, 5% becomes 0.05, 7.25% becomes 0.0725.

Q3: Can this calculator handle monthly time periods?
A: Yes, simply convert months to years (e.g., 6 months = 0.5 years, 18 months = 1.5 years).

Q4: Is this formula used for all types of loans?
A: This formula calculates simple interest, which is commonly used for short-term loans and some personal loans.

Q5: What if I want to calculate total repayment amount?
A: Add the calculated interest to the principal amount: Total = Principal + Interest.