Simple Interest

Simple interest is a quick and easy method of calculating the interest charge on a loan. Simple interest is determined by multiplying the daily interest rate by the principal by the number of days that elapse between payments (I = P × r × t). Unlike compound interest, which accumulates interest on previously earned interest, simple interest is only ever calculated on the initial principal amount. Simple interest usually applies to short-term loans or automobile loans, while compound interest is more common for investments and credit cards.