![]() Simple Interest Example: Sandra agrees to lend Jason $10,000 for 24 months with an annual interest rate of 5% per year, and selects the "Simple Interest" option. R = annual interest rate expressed as a decimal (e.g.A = Total Loan Value (Principal + Interest).The Simple Interest Formula utilized on the Pigeon platform is A = P(1+(R/12)t), where: ![]() Borrowers won't pay less for paying off their loan early, nor will they pay more for missed or late payments). Therefore, the total amount of interest paid to the Lender is known from the beginning and will not increase or decrease based upon the Borrower's repayment behavior (e.g. Unlike Compound Interest, Simple Interest is calculated once at the initiation of the loan, and does not change or "update" based on the outstanding balance at the end of each repayment period (after any of the Borrower's payments have been applied, of course). Using this method can be thought of as calculating the total amount of interest to be paid to the Lender up front, and then adding it to the Principal to be paid over the course of the loan. Simple Interest calculates the cost of borrowing based on the original principal amount at the beginning of the loan, and does not take into consideration the effects of compounded or "accrued" interest over the duration of the loan. Reminder □: Interest can be thought of as the price paid by the Borrower to the Lender in exchange for the right to borrow money, and is usually calculated as a percentage of the loan amount (a.k.a. When creating or tracking an agreement on Pigeon, you are given the option to choose between the two most common methods of adding interest to your loan: Simple Interest or Compound Interest.
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