Question

PLEASE NO COPIED OR HANDWRITTEN ANSWERS

Is simple interest primarily used for short-term or long-term loans? How is it computed?

Answer 1

Answer: Simple Interest is primarily used for Short term loans but in some cases for mortgage and auto car loans as well.

It is computed as

Simple interest rate = Principal * Interest rate * Number of period.

To put it simply amount borrowed multiplied by Daily interest rate and time elapsed in number of days.

In Simple Interest, each month payment goes first in servicing the interest accrued for that month and reminder goes for servicing the principal. it goes on like this for every month leading to no interest buildup as it is paid in full already for that month.

It is beneficial for customer as by paying early you can reduce your interest amount.