Simple Interest for Dummies
noun
pronunciation: 'sɪmpəl_'ɪntərɪstWhat does Simple Interest really mean?
Simple Interest is a term we use to talk about money. Imagine for a moment that you have some extra money, and you want to lend it to someone else so that they can use it for a little while. When you lend someone money, it's only fair that they give you something back in return - that's where simple interest comes in.
Now, let's break it down into smaller parts to make it super clear. The word "simple" means straightforward or easy to understand. So, we're talking about a basic type of interest that is not complicated or tricky. Interest, in this case, refers to the extra money that the person borrowing from you has to pay you back for using your money.
You see, when someone borrows money from you, it's like they're borrowing your toy. They're grateful for having it and using it, but since it's not theirs, they have to give it back to you after some time. Similarly, when someone borrows money from you, they have to give it back eventually, plus a little extra as a way of saying "thank you" for letting them use it. And that "thank you" is what we call interest.
Simple interest is calculated by looking at two important things: the amount of money that you lend (also known as the principal) and the length of time that the person borrows the money for (also known as the time period). So, the longer they borrow the money or the more money they borrow, the more interest they have to pay you back.
Let's put it into an example to make it clearer. Imagine you lend your friend $100, and you agree that they will pay you back in one year. Now, let's say you decide that for every month they have the money, they should give you an extra $2. So, if they use your money for 12 months, they would have to pay you back the original $100 plus an additional $24 in interest. That extra $24 is the simple interest.
So, to wrap it up, simple interest is the extra money that someone has to pay you back when they borrow money from you. It's a straightforward way of calculating the cost of borrowing money based on the amount borrowed and the length of time it is borrowed for. It's like borrowing a toy from a friend, where you have to return it eventually, but also give a little something extra to show your gratitude.
Now, let's break it down into smaller parts to make it super clear. The word "simple" means straightforward or easy to understand. So, we're talking about a basic type of interest that is not complicated or tricky. Interest, in this case, refers to the extra money that the person borrowing from you has to pay you back for using your money.
You see, when someone borrows money from you, it's like they're borrowing your toy. They're grateful for having it and using it, but since it's not theirs, they have to give it back to you after some time. Similarly, when someone borrows money from you, they have to give it back eventually, plus a little extra as a way of saying "thank you" for letting them use it. And that "thank you" is what we call interest.
Simple interest is calculated by looking at two important things: the amount of money that you lend (also known as the principal) and the length of time that the person borrows the money for (also known as the time period). So, the longer they borrow the money or the more money they borrow, the more interest they have to pay you back.
Let's put it into an example to make it clearer. Imagine you lend your friend $100, and you agree that they will pay you back in one year. Now, let's say you decide that for every month they have the money, they should give you an extra $2. So, if they use your money for 12 months, they would have to pay you back the original $100 plus an additional $24 in interest. That extra $24 is the simple interest.
So, to wrap it up, simple interest is the extra money that someone has to pay you back when they borrow money from you. It's a straightforward way of calculating the cost of borrowing money based on the amount borrowed and the length of time it is borrowed for. It's like borrowing a toy from a friend, where you have to return it eventually, but also give a little something extra to show your gratitude.
Revised and Fact checked by Emily Davis on 2023-10-28 17:54:40
Simple Interest In a sentece
Learn how to use Simple Interest inside a sentece
- If you borrow $100 from your friend and promise to pay it back in a month, your friend might ask you to give them an extra $5 as simple interest. So, the total amount you will have to pay back is $105.
- Let's say you put $200 in a savings account that gives you a 2% simple interest rate. After a year, you will earn $4 in interest. This means your total savings will become $204.
- Imagine you lend your sister $50 and she agrees to pay you back after 6 months with simple interest of 10%. That means she will owe you an extra $5 after the 6 months. So, she will return a total of $55.
- Suppose you invest $1000 in a company that pays a 4% simple interest annually. At the end of the year, you will earn $40 as interest. Therefore, your total investment will be worth $1040.
- If you take a loan of $500 from the bank with a simple interest rate of 8% per year for 3 years, you will have to pay back a total of $140 as interest, making the final repayment amount $640.
Simple Interest Hypernyms
Words that are more generic than the original word.