What is a simple interest loan?

• Daner Duncan posted Feb 3, 2016 10:51 PM
What is a simple interest loan?
Bank loans are a pivotal source of short-term credit. Interest on bank loans may be bided as simple interest, discount interest or installment interest.
Under the simple interest method, interest is calculated or preplanned only on the amount borrowed. In a simple interest loan, the organization receives the principal and repays the principal plus interest at the end of the loan period. (Norwicki, 2008)
It is calculated by multiplying the loan amount (e.g. $10,000) by the interest rate given to you by the bank (e.g. 5%) by the number of the payment periods over the life of the loan (e.g. 72 months). Simple interest is worked out at an accrual method. The interest of a simple inters loan accrued on a daily basis on the unpaid principal balance.
One other ting about simple interest is, if payments are paid before its scheduled due date less interest accrues and the principal balance will reduce at a faster rate.

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