An Interest Calculator is one that is used by individuals or firms within the financial sector to determine the amount of interest that will be accrued by a person or firm or business to whom they are extending credit in any form.
The Interest Calculator exists in a number of forms. It can be a document with a formula that is embedded within a spreadsheet document like what Microsoft Excel offers; an Interest Calculator can also exist as a web-page, as in the case where financial firms create web-pages that have the interest calculator embedded within them. This assists prospective clients to use these pages to find out what interest they may incur if they decide to use the financial services belonging to that provider.
The Interest Calculator can also be the actual device used to process this interest figure, and in this case, we are talking about a calculator as a mechanical device.
An Interest Calculator can also exist as a written formula, one that is simply worked out mathematically, on paper.
Interest Calculators typically cover two forms of interest: simple interest and compound interest.
In the case of a mechanical device, it can be programmed to work out the different types of interest, that is, simple and compound interest.
In the case of embedded formula based documents like Microsoft Excel spreadsheets or even web-pages with embedded formula, variations can be made for calculating both simple and compound interest as well.
The same variation can occur when it is calculated as a mathematical formula: you can have a mathematical formula for simple interest and a variation of the same for compound interest.
Simple interest involves calculations involving three basic variables: the principal, the time period and the rate of interest for that specific block of time.
Compound interest rates take into account several factors. These include the principle, the rate of interest over a specific period of time, and the time period involved; however, it also includes an important variation: the rate at which the interest amount paid changes over the varying principal over time.
Some compound interest calculations incorporate an allowance for fluctuations like inflation rates as well as bank rates, insurance premiums and things that affect the returns the financial institution gets from the transaction. Compound interest rates can also take into account penalties for early payments or even late payments, as determined by calculations stipulated by the financial institution.
Interest calculators will thus obviously vary in the situations they are used. Simple interest calculations best serve one off payments and are rarely used for the complicated and more long term financial arrangements. Simple interest rates cover calculations or transactions that are usually more informal in nature.
Compound interest rate calculations are more typical of formal business arrangements that are found in insurance firms, banks, credit card companies, mutual fund managers as well as saving scheme firms.