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SIMPLE INTEREST

A quick method of calculating the interest charge on a loan. Simple interest is determined by multiplying the interest rate by the principal by the number of periods.

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WHY IS IT CALLED SIMPLE

Simple interest is called simple because it ignores the effects of compounding. The interest charge is always based on the original principal, so interest on interest is not included.

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HOW TO CALCULATE...

STEP1:
Obtain the information required to calculate the total amount of interest to be paid.

STEP 2:
Use the amount of money you wish to borrow as the principal.

STEP 3:
Express the interest rate as a fraction over a hundred multiplied by the amount over one.

STEP 4:
Take the total and multiply it by the term and don't forget to add initial amount.

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EXAMPLE:

• Initial amount: R5000
• Interest: 12%
• Term: 4 years

Year 1: 5000 x 12/100 =600
Year 2:5000 x 12/100 =600
Year 3:5000 x 12/100 =600
Year 4:5000 x 12/100 =600

WE WOULD THEN SAY

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DONE BY: