What is simple interest?

Simple interest is calculated as follows:

Simple Interest (S) = (Amount to pay: P) X (Percentage Interest per unit of time: I) X (Repayment period / Number of units of time: N)

We can write this as:

S = P x I X N

or

S = PIN

So, if an amount to pay is £18,000, the yearly interest rate is 6% and we have 3 years to pay, then.

S = 18000(0.06)(3) = 3240

This means that the amount of interest to pay is £3,240.

Over the 3 year repayment period, we pay back: £18,000 + £3,240 = £21,240