GLOSSARY

Canadian Financial, Real Estate and Mortgage Glossary

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Simple Interest Loan


Synonyms:non-compound interest loan, plain interest loan, straight interest loan
Filed Under: financial-banking
Tags: banking
 

Definition of simple interest loan

simple interest loan
1. A method of allocating the monthly payment between interest and principal. The interest charged is determined by the unpaid principal balance on the loan, the interest rate, and the number of days since the last payment. The rest of the payment goes to the principal. Making early payments or additional payments will reduce the loan's principal and cut the total interest paid over the life of the loan.

Related Terms and Acronyms:

  • amortization   Amortization refers to the process of gradually paying down the principal of a loan. Each payment toward the principal reduces your loan by that amount. This is different than an interest-only loan payment where the principal balance is never reduced. Amortization for a mortgage loan in Canada is normally 25 years, but can be as few as 5 years.
  • annual percentage rate (APR)   A yearly rate of interest that includes fees and costs paid to acquire the loan. Lenders are required by law to disclose the APR. The rate is calculated in a standard way, taking the average compound interest rate over the term of the loan, so borrowers can compare loans. In mortgages, it is the interest rate of a mortgage when taking into account the interest, mortgage insurance, and certain closing costs including points paid at closing. There is no APR in an automobile lease; instead, the cost of money is expressed as the money factor.
      ➥  A number used to compare costs associated with mortgage loans and other forms of financing.
  • annual percentage yield (APY)   The percentage, required by Truth in Savings regulations, to be disclosed on interest-bearing deposit accounts that reflects the total interest to be earned based on an institution's compounding method, assuming funds remain in the account for a 365-day year.
  • compound interest   Interest that is calculated by adding the interest earned in the current period to the principal and figuring the next period's interest on this "compounded" total amount.
  • compounding method   Used in Bank rate tables. These include: S--Simple interest. A--Compounded annually. H--Compounded semi-annually. Q--Compounded quarterly. M--Compounded monthly. D--Compounded daily.
  • interest rate (IR)   The rate a lender charges an individual to borrow money.
  • level payment   A method of repayment where periodical payments of principal and interest are made in a certain way so the payment amount remains constant.
  • loan   Letting another party use something of value temporarily.
  • principal   The original balance of money lent on an outstanding loan and fees, excluding interest. Also the remaining balance of a loan, excluding interest.
  • simple interest (SI)   Interest computed only on the principal balance, without compounding.

More Related Terms and Acronyms

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