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LSDefine
Simple English definitions for legal terms
simple interest
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A quick definition of simple interest:
Simple interest is when you earn money on the money you have saved. It's like a reward for keeping your money in a bank account. The bank pays you a certain percentage of your savings as interest. The more money you save, the more interest you earn. It's a way to make your money grow without doing anything!
A more thorough explanation:
Definition: Simple interest is a type of interest that is calculated on the principal amount of a loan or investment. It is a fixed percentage of the principal amount that is paid as interest over a certain period of time.
Example: If you borrow $1000 at a simple interest rate of 5% per year for 2 years, you will have to pay back $1100 at the end of the 2-year period. This is because the interest is calculated as 5% of the principal amount ($1000) for each year, which comes to $100 for 2 years. So, the total amount you have to pay back is $1000 (principal) + $100 (interest) = $1100.
This example illustrates how simple interest works. The interest is calculated only on the principal amount and does not take into account any interest that has already been paid. This makes it different from compound interest, where the interest is calculated on both the principal amount and any interest that has already been earned.