​Simple Interest Terms

The amount of money borrowed is the principle.

When money is borrowed from a bank or other institutions that lend money interest must be payed on the money borrowed.

​Interest:

The interest is a fee that is charged for the use of the money.

Usually the loan is repaid in monthly payments in equal amounts.

Rate:

The rate of interest is the percentage of the principle that is charged on a loan for the use of the money based on 1 year.

Formula

To find the interest on the borrowed money we use this formula:

i= PRT
100

PRT:

Principle: the amount borrowed

Rate: percentage of interest

Time: how long the loan agreement is based on years

Example:

$100 for 2 years at 10%

PRT = 100 x 10 x 2 = 100 x 10 x 2 = $20
100 100 100

I= $20
Payback= 100 + 20= $120

Example:

$350 for 5 years at 7%
1
PRT = 350 x 7 x 5 = 350 x 7 x 5 = 245 = $122.50
100 100 100 2
2
I= $122.50
Payback= 350 + 122.50= $272.50