Definition of simple interest

Amongst the two types of interest, simple interest is one of the types of interest. As the name suggest simple interest is a simplest way of paying or calculating the interest on the original amount. These types of interest, usually apply to very short-term loans or automobile loans. The definition part of simple interest is that it is determined by multiplying the interest rate by the principal and by the number of days for which the interest is taken

The numeric formula of simple interest is: P*I*N
Where:
P- Principal

I- Interest

N- Number of days, months or years.

Generally whenever the payment is done on a loan for which interest is paid in terms of simple interest, the payment firstly goes to the payment of the month, and the remainder of the payment goes towards the principal amount. The interest for each month is always paid in full and final, so there is no room for accrues.

Here is the explanation to clarify the concept more:

Let us take an example of a loan taken on the automobile, the loan has a $15,000 principal, and an annual simple interest of 5 percent. For instance if the payment which is to be done by you is due on May 1^st and you do pay it on the due date, the the interest calculated by the finance company will be on the 30 days which are in April. In this scenario, the interest of yours for 30 days will be  $61.64. On the other hand, if you make the payment on 21^st April, the interest charged from you by the finance company will only be of 20 days in April, as a result the interest rate will be  $41.09 and you will end up saving $20.