Simple Interest Loan Amortization Calculator

What is Simple Interest Loan Amortization?

Simple interest loan amortization is a method of applying loan payments to both the principal and the interest in a loan using a simple interest calculation. In this method, interest is calculated only on the outstanding principal balance, not on accumulated interest.

The Simple Interest Loan Amortization Formula

The formula for calculating the monthly payment in a simple interest loan amortization is:

\[M = \frac{P * r * (1 + r)^n}{(1 + r)^n - 1}\]

Where:

• \(M\) = Monthly payment
• \(P\) = Principal loan amount
• \(r\) = Monthly interest rate (annual rate divided by 12)
• \(n\) = Total number of months (term in years * 12)

Step-by-Step Simple Interest Loan Amortization Calculation

1. Determine the principal amount (P), annual interest rate, and loan term in years.
2. Calculate the monthly interest rate (r) by dividing the annual rate by 12.
3. Calculate the total number of payments (n) by multiplying the loan term in years by 12.
4. Apply these values to the simple interest loan amortization formula.
5. Calculate the monthly payment (M).
6. Multiply the monthly payment by the total number of payments to get the total amount paid over the life of the loan.
7. Subtract the principal from the total amount paid to get the total interest paid.

Example Calculation

Let's calculate the monthly payment for a loan with a principal of $200,000, an annual interest rate of 4.5%, over a 30-year term:

1. \(P = \$200,000\), annual rate = 4.5%, term = 30 years
2. \(r = 4.5\% \div 12 = 0.375\%\) per month
3. \(n = 30 \text{ years} * 12 = 360\) months
4. \(M = \frac{200000 * 0.00375 * (1 + 0.00375)^{360}}{(1 + 0.00375)^{360} - 1} = \$1,013.37\)
5. Total amount paid = \$1,013.37 * 360 = \$364,813.20
6. Total interest paid = \$364,813.20 - \$200,000 = \$164,813.20

Visual Representation

The green portion represents the principal ($200,000), and the red portion represents the total interest paid ($164,813.20) over the life of the loan.