When someone lends money to someone else, the borrower usually pays a fee to the lender. This fee is called ‘interest’. ‘**Simple**‘ interest, or ‘**flat rate**‘ interest. The amount of simple interest paid each year is a fixed percentage of the amount borrowed or lent at the start.

The simple interest formula is as follows:

Interest = Principal × Rate × Time

where:

‘Interest‘ is the total amount of interest paid,

‘Principal‘ is the amount lent or borrowed,

‘Rate‘ is the percentage of the principal charged as interest each year. The rate is expressed as a decimal fraction, so percentages must be divided by 100. For example, if the rate is 15%, then use 15/100 or 0.15 in the formula.

‘Time‘ is the time in years of the loan.

The simple interest formula is often abbreviated in this form:

I = P R T

Whenever money is borrowed, the total amount to be paid back equals the principal borrowed plus the interest charge:

total repayments = ( principal + interest )

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