Understanding Simple Interest (I=PRT)
Simple interest is the method used to calculate the interest charge on a principal amount. It is commonly applied to student loans, car loans, and short-term investments. The key formula is: Interest = Principal × Rate × Time.
Key Components:
- P (Principal): The initial cash balance. This is the amount the interest is calculated against throughout the entire loan or investment term.
- R (Rate): The Annual Interest Rate. This calculator automatically converts your percentage input (e.g., 5) into the required decimal (0.05) for calculation.
- T (Time): The duration, which must always be entered in Years. For example, 18 months would be entered as 1.5.
The Total Future Value (A) is calculated as the Principal plus the Interest: A = P + I. This figure is crucial for understanding the final cost of a loan or the total return on an investment.