1. What is Simple Interest?

Simple interest is a method of calculating the interest charge on a loan or investment based only on the original principal amount. Unlike compound interest, simple interest doesn't accumulate on previously earned interest.

2. How Does the Calculator Work?

The calculator uses the simple interest formula:

Where:

• \( I \) — Simple interest (£)
• \( P \) — Principal amount (£)
• \( r \) — Annual interest rate (as decimal)
• \( t \) — Time period in years

Explanation: The formula calculates interest by multiplying the principal amount by the interest rate and the time period.

3. Importance of Simple Interest Calculation

Details: Simple interest is commonly used for short-term loans, car loans, and some types of investments. Understanding simple interest helps in financial planning and comparing different loan or investment options.

4. Using the Calculator

Tips: Enter the principal amount in £, interest rate as a percentage (e.g., 5 for 5%), and time period 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 the principal plus any accumulated interest.

Q2: When is simple interest typically used?
A: Simple interest is often used for short-term loans (less than 1 year), car loans, and some personal loans.

Q3: How do I convert annual rate to monthly?
A: For simple interest, divide the annual rate by 12 to get the monthly rate (but make sure to adjust the time period accordingly).

Q4: Can I use this for investments?
A: Yes, if your investment earns simple interest. However, most investments use compound interest.

Q5: Is simple interest better than compound interest?
A: For borrowers, simple interest is usually better. For investors, compound interest typically yields higher returns.