Short-Term Loan Interest Calculator

What is a Short-Term Loan?

A short-term loan is a type of borrowing that is typically repaid within a year or less. These loans are often used to cover immediate financial needs or unexpected expenses. The interest on short-term loans is usually calculated using a simple interest method.

The Short-Term Loan Interest Formula

The formula for calculating interest on a short-term loan is:

\[I = P \times r \times t\]

Where:

• \(I\) = Interest accrued
• \(P\) = Principal (loan amount)
• \(r\) = Annual interest rate (in decimal form)
• \(t\) = Time period (in years)

Step-by-Step Short-Term Loan Interest Calculation

1. Determine the principal amount (P), annual interest rate (r), and loan term (t).
2. Convert the interest rate to decimal form (divide by 100).
3. Convert the loan term to years if necessary (e.g., 30 days = 30/365 years).
4. Multiply P, r, and t together to get the interest (I).
5. Add the interest to the principal to get the total amount due.

Example Calculation

Let's calculate the interest for a short-term loan of $5,000, with an annual interest rate of 12%, for 30 days:

1. \(P = \$5,000\), \(r = 12\% = 0.12\), \(t = 30/365 \approx 0.0822\) years
2. \(I = 5000 \times 0.12 \times 0.0822 \approx \$49.32\)
3. Total Amount Due = \$5,000 + \$49.32 = \$5,049.32

Visual Representation

The green portion represents the principal ($5000), and the blue portion represents the interest accrued ($49.32).