What is a simple interest loan?

A simple interest loan assesses fees based only on a flat percentage. The principal amount is multiplied by an interest rate, and the resulting sum is the only interest charged on the loan. This amount is divided among the payment terms.

A borrower will pay a portion of the principal and a flat interest fee each month or payment term. When the loan is paid off, the principal and interest are completely returned to the borrower. There is no compounding of interest, and there is no ballooning of fees. A simple interest loan is usually the most affordable option.

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