Question 1

What is the formula for simple interest?

Accepted Answer

The formula is `SI = P × r × t`, where P is Principal, r is Annual Interest Rate (decimal), and t is Time in years. To get the total repayment, calculate `P + SI`.

Question 2

Is simple interest better than compound interest?

Accepted Answer

For borrowers, yes you pay less. For savers, no you earn less. Simple interest grows linearly, while compound interest grows exponentially.

Question 3

How do I calculate interest for days?

Accepted Answer

Divide the number of days by 365 to get the 'Year' fraction. For 45 days: `(45/365) = 0.123 years`. Then plug 0.123 into the formula.

Question 4

Does this work for mortgages?

Accepted Answer

No. Mortgages use amortization (compound math). Using this calculator for a home loan will yield incorrect results.

Question 5

What is the 360-day year?

Accepted Answer

The 'Banker's Rule' uses a 360-day year (12 months of 30 days) to simplify math. It slightly benefits the lender. Most personal loans use 365 days.

Question 6

What interest rate should I charge a family member?

Accepted Answer

The IRS sets an 'Applicable Federal Rate' (AFR) monthly. Charging below this rate can be considered a 'gift' for tax purposes. Check the current AFR for the loan term (Short, Mid, or Long-term).

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