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Definition

Simple loan

Definition (1):

A simple loan refers to a credit market instrument giving the borrower an amount of fund that must be repaid to the lender at the date of maturity along with an extra payment (interest).

Definition (2):

A simple loan is also called a simple interest loan. It is a kind of loan arrangement applying the interest rate on a daily instead of a monthly basis. This little difference doesn’t make a major impact on the debtor’s repaid amount over the period of a short-term loan. But the interest payable on this loan over a long time period can be significant. Many customers who are given the opportunity to select between this loan and a standard loan can be benefitted from using this loan calculator for projecting the total interest amount that will be paid over the term of the loan than calculated applying the standard method. It will make it much simpler to ascertain if the difference is considerable and if paying the extra interest is offset by extra benefits given in the terms and conditions of the loan.

Under a simple loan, the applied daily interest rate is generally obtained by dividing the annual rate by either 365 or 360, based on the terms mentioned within the loan contract. Then this rate is applied to the loan balance every day until the full payment of the loan. On the other hand, a standard method divides the annual rate by 12 and applies this rate to the balance every month.

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