Total with simple interest
v1capitaltasaaniostotal_a_pagarHow it is worked out
Work out what is repaid on a loan whose interest is always charged on the original principal.
With simple interest, interest earns no interest: the same percentage of the original principal is charged every year. Two million at 12 % over three years produces 720,000 of interest, and the total repaid is 2,720,000.
The expression that runs
capital + capital * tasa * anios / 100The fields arrive with an example filled in: put your own numbers in and run it again. You can also edit the formula to fit your case.
What if the formula were yours?
This calculator is not hand-written: it is an Axioma formula. Open it in the editor to see how it is built, adapt it to your case and create the ones you need.
How it is worked out
Twelve per cent of two million is 240,000 a year. Over three years, 720,000. That interest is added to the principal and gives 2,720,000. Each year contributes exactly the same, so growth is a straight line.
Hence the name: there is nothing accumulating. The second year of interest is worked out on the same two million as the first, not on the 2,240,000 already owed.
How it differs from compound interest
If that interest were reinvested the total would be 2,809,856 instead of 2,720,000: almost ninety thousand more. The gap looks small over three years and becomes enormous over twenty, because one grows in a straight line and the other in a curve.
As a rule of thumb: simple interest favours you when borrowing and compound interest when investing. It is worth knowing which one applies before signing.
Where it actually turns up
Simple interest is used in loans between individuals, in some short term credit, in promissory notes and in the late payment interest on many invoices, which is usually charged by the day on the overdue balance.
Consumer and mortgage lending normally works the other way: it amortises with a fixed payment and charges interest on the outstanding balance, which is a different formula.
Frequently asked questions
- How much is the interest on its own?
- Subtract the principal from the result: 2,720,000 less two million is 720,000. It also comes straight out of principal times rate times years, divided by a hundred.
- What if the term is in months?
- Enter the years as a decimal: six months is 0.5 and eighteen months is 1.5. The formula works the same because time simply multiplies.
- Is it the same as compound interest?
- No. Compound interest also charges on the interest already accrued, so it always comes to more. Over three years at 12 %, almost ninety thousand more on two million.