Interest calculated on the principal amount only of a loan for each period on which interest is paid, as against compound interest where interest is added to the existing balance so that the subsequent interest calculation is made on principal plus interest. For example, $10 000 invested at 10 per cent simple interest per annum would earn $82 in each month for the term of the loan. With compound interest, the second month's interest would be calculated on $10 082 and so on. See also: compound interest, flat rate of interest, principal.
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