What Is Simple Interest?

Simple interest is defined as the interest that is estimated on the principal amount. It is calculated with the entire principle amount that is put into your savings account. In short, it is the process of allocating monthly loan payments anywhere between the interest and principal. The sum of your disbursement to be paid to interest is calculated on terms of your unpaid principal balance, the interest rate on your loan, and the number of days since your last payment.

Interest calculated on the principal amount invested. It can be calculated from the formula I = Pni where I is the amount of simple interest, P is the principal, n is the number of periods, and i is the simple rate of interest for every period. Simple interest is usually only used when the gap of time concerned is short.