Simple Interest Loan Calculations: Example
This image shows a spreadsheet with a simple-interest loan at a fixed interest rate of 12%/year, but which allows variable repayment amounts in the “Payment /month” column.
This spreadsheet uses a straightforward monthly interest rate that is 1/12 of the annual, or 1% per month. It also assumes that the full principal amount was taken at once; interest is calculated before applying the payment; and payments are made on time. Any loan or investment you make may have different rules, such as daily interest calculations, or applying payments before calculating interest.
The “$ Interest /month” equals the “LOAN: Principal Balance” amount times the “Annual Interest Rate,” divided by 12.
For the first three months, the $50 payment is less than the interest cost. This demonstrates that for a simple interest calculator, the next interest amount is based on the current principal, not on the “Interest Balance” or “Total Balance” that includes previous interest. The monthly Interest remains $100, even though the Total Balance increases.
Once the monthly payment becomes $150, the Interest Balance dwindles by $50/month. After that, the payment in excess of the monthly interest charge reduces the principal. Then, the monthly interest cost becomes less; and the payment applied to principal increases.
Math of a Simple Interest Calculator
Learning how to calculate simple interest is a matter of multiplication along with a bit of technical vocabulary. It’s easy build your own simple interest calculator in a spreadsheet; just take care not to keep it simple – don’t compute interest on interest.
Simple Interest Calculator. Money Chimp. Referenced April 10, 2013.
Why Make More Than The Minimum Payment? Control Credit Card Debt. Referenced April 10, 2013. (This has a compound interest calculator).