In 2018, the National Energy Improvement Fund (NEIF) commenced operations with the purpose of helping folks across the nation upgrade the efficiency, safety, and overall comfort of their homes and/or businesses at affordable costs.

Since its inception, NEIF’s focus has remained focused on offering fixed-rate, low monthly payment plans for home and business owners installing any number of upgrades that qualify for NEIF’s residential and commercial financing programs. Through both market-rate offerings and programs administered on behalf of some of the country’s largest utility companies, NEIF is uniquely qualified to meet customers’ varying needs.

At the same time, NEIF also understands that good financing goes beyond just offering the ‘best’ rates — but that it additionally includes a trusted and transparent process from start to finish.

So today, NEIF is starting from the top and dishing out what customers should know about financing before applying for a loan — let’s talk simple interest!

What is Simple Interest?

Simple interest is a method of calculating an interest charge using the original amount of money borrowed, or what is known as the loan principal.

When money is borrowed from a bank or other lending institution, borrowers are responsible for paying an interest charge for the loan, serving essentially as the “cost” of borrowing money. Unlike compound interest — where accumulation and other variables are at play — simple interest involves a straightforward calculation and provides borrowers with a clear idea of their cost of borrowing.  

How to Calculate Simple Interest:

Variables when calculating simple interest include:

• P: Principal (original amount of money borrowed)
• R: Interest rate (established in loan agreement)
• T: Loan term (in years)

The formula?

Simple Interest = P x R x T

What Simple Interest Means for Loan Repayment:

If you have a savings account open at your bank — chances are, you’ve been paid simple interest. Aside from bank savings accounts, interest charges also commonly apply to auto loans, short-term personal loans, and all of NEIF’s residential energy efficiency loans.

With a simple interest loan, interest accrues daily on the remaining balance of the loan. Therefore, interest is paid only for the time that the loan is outstanding and on the principal.

For example, let’s say you’re in need of a new ductless mini split system. After deciding to work with one of NEIF’s Approved Contractors, you’ve decided to finance $8,000 of the total project cost. The annual interest on the loan is 8.99% with a five-year term.

The resulting simple interest charge would look something like:

$8,000 (Principal) x 0.0899 (Interest Rate) x 5 (Loan Term – in years) = $3,596 (Simple Interest)

Over the five-year duration of the loan, you would have ultimately paid the principal ($8,000) plus simple interest charge ($3,596) for a grand total of $11,596.

With NEIF financing, borrowers will not face penalties or be charged additional fees for paying off their loan ahead of time.

What does this mean exactly?

To reduce the amount of interest paid over the term of the loan, NEIF customers can prepay their loan at any time. Any partial prepayments are applied to the outstanding interest as well as the outstanding principal. As long as their payments are up to date, if a customer chooses to send an amount greater than their monthly payment, the funds will be applied to the principal.  

When in doubt, don’t be afraid to ask questions! Information is power — especially when it comes to making decisions that can affect either your home or businesses’ efficiency and safety, as well as your personal finances. As always, the NEIF team is here to help. Contact our Energy Lending department at lending@neifund.org with any questions on our loan process.