How to Define Simple Interest

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Simple interest is defined as the fixed rate of interest charged for a fixed period of time. Calculate simple interest on a loan with help from a certified public accountant in this free video on business and accounting terms.

Part of the Video Series: Business & Accounting Terms
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Video Transcript

How to define simple interest. As we said earlier interest is the fee that we pay for the use of money. Interest can be calculated in many different ways referenced to different, balances, time periods, etcetera. In the case of simple interest there is a fixed rate of interest charged for a fixed period of time. If a loan is made for a hundred thousand dollars for five years and the rate of interest, the nominal rate of interest is six percent the charge for the life of the loan is six percent per year times a hundred thousand dollars, or thirty thousand dollars for the five years. In contrast to compound interest, where over a period of time the accumulated interest charged on the loan is subject to an interest charge until it is actually paid.


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