The annualized loan interest rate can be calculated by compound interest or simple interest, and the simple interest calculation method is simple interest. Simple interest means that no matter how long the deposit period of the fund is, only the interest of the principal is charged, and the interest of previous periods is not charged in the next interest period.
Annualized interest rate refers to the interest rate discounted to the whole year through the inherent rate of return of products. The annualized interest rate of the loan shall be calculated according to the ratio of all loan fees charged to the borrower to the actually occupied loan principal, and converted into annualized form.
Simple interest means that no matter how long the deposit period of the fund is, only the interest of the principal is charged, and the interest of previous periods is not charged in the next interest period. When calculating simple interest, the following symbols are often used: p- principal, also known as initial amount or present value; I- interest rate, usually refers to the ratio of annual interest to principal; I- interest; F- the sum of principal and interest, also known as the sum or final value of principal and interest; N-the number of interest periods, usually in years.
The calculation formula of simple interest is interest (I)= principal (P)× interest rate (i)× number of interest-bearing periods (n). When calculating interest, unless otherwise specified, the interest rate given refers to the annual interest rate. Less than one year's interest, one year is equal to 360 days.
The role of simple interest in annual interest rate
1. Simple calculation: Compared with compound interest, the calculation method of simple interest is simpler and more intuitive, and only the product of initial principal and annual interest rate needs to be considered, without considering the complicated compound interest calculation formula.
2. Fast estimation: For short-term investments or simple loans, simple interest rates can provide fast interest estimation. By multiplying the corresponding initial principal and annual interest rate, the amount of interest can be quickly estimated to help the initial decision.
3. Risk control: In some cases, simple interest can be used to evaluate risks. For example, for short-term capital turnover such as short-term loan or bill market, simple interest can be used as a relatively conservative estimation method to help evaluate the relationship between risk and income.