1. How to Calculate Simple Interest Simple interest is the most straightforward way to charge interest because it’s only calculated based on your original loan amount, called the principal.

For example, if you take out a five-year loan for $20,000 and the interest rate on the loan is 5 percent, the simple interest formula would be $20,000 x .05 x 5 = $5,000 in interest.

The formula for simple interest requires your initial principal balance, annual interest rate, and time in years. Alyssa Powell/Insider Variables in a formula To use a simple interest calculator ...

Lenders calculate how much interest you’ll pay with each payment in two main ways: simple or on an amortization schedule. Short-term loans often have simple interest. Larger loans, like ...

For example, if you take out a five-year loan for $20,000 and the interest rate on the loan is 5 percent, the simple interest formula would be $20,000 x .05 x 5 = $5,000 in interest.