Simple interest

Debt Term

While it is rarely offered, debt that charges simple interest would apply that interest rate just once during the relevant period of time, typically one year.

For example if your uncle loaned you $10,000 to start your business with an annual simple interest rate of 5%, then at the end of the first year you would owe him $500 in interest (5% times $10,000) if you had not yet paid him back any of the $10,000 (the “principal”).

Simple interest is the opposite of compound interest.

Don Gooding

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