Simple interest loan calculations
A simple interest loan calculation is one method of figuring out how much you will pay for borrowing money. It is a relatively easy calculation to figure out and can be done by hand. It is used for all unsecured loans, such as personal and credit card loans. These types of loans generally do not require collateral (with the exception of a secured loan), and are generally obtained from a bank or lending institution.
Whenever you are borrowing money, it is important to understand exactly how much interest you will pay on the loan. Each month your payment will be calculated by adding your principal payment (the original amount borrowed) to the interest (the time value of money that the lender charges).
A conventional mortgage is usually offered with a fixed or variable rate of interest. A fixed rate means the interest rate does not change no matter when the mortgage was first taken out, while variable rates can change over time. However, these programs are not guaranteed by the federal government, they usually have unique and sometimes can be strict lending requirements that are set by the creditors and banks.
The basic formula for calculating simple interest is:
Principal x Interest Rate x Time = Total Interest
You can then divide the total interest by the number of months you have to repay the loan to get a monthly figure. Using a simple interest calculation can be useful when determining whether you can afford a loan, but it does have its drawbacks. For example, if you want to know how much interest you will pay over the life of the loan then simple interest is not the best option. In fact, the longer the term of the loan, the less accurate a simple interest calculation will be. Also, this method does not account for compounding interest or early loan repayment fees.
At MortgageQuote.com , we can help you determine exactly how much you can afford to pay so you can start looking at loan options ahead of time and be prepared for the house purchase process.
What is a simple interest loan?