Simple interest is the easy way to calculate the interest charge. You use the simple interest formula to determine how much interest you will pay on a loan that does not compound.

A simple interest loan only charges interest on your original principal, not the entire balance. You'll often see these for car or personal loans. Keep reading.

How Simple Interest Works: An Example Suppose you take out a $5,000 loan at 6% interest for two years. To calculate the amount of interest you will pay, use the simple interest formula above.

With a simple interest loan, interest is based only on principal, and you can easily calculate it to find out the true cost of borrowing.

Compound Interest Formula The formula for compound interest is more complex than simple interest: P (1 +r/n)nt, where: P = the initial principal balance r = the interest rate n = the number of times ...

Using the formula above, the monthly principal and interest payments for this loan option would be $201.55.

Learn how to calculate the Simple Interest in Excel either for a single entry or a range or entries, between two dates, using this forumula.

Calculating student loan interest can be pretty straightforward, but how you calculate it will vary depending on whether you’re dealing with simple or compound interest.