Simple Interest Calculator
Calculate simple interest on a loan or investment. Shows interest earned and final amount using the formula I = P × r × t.
Simple interest formula: I = P × r × t. Interest is calculated only on the original principal. For interest that earns on itself, use the compound interest calculator instead.
The simple interest formula
Simple interest follows the formula I = P × r × t, where P is the principal, r is the annual rate as a decimal, and t is time in years. On a $10,000 loan at 5% for 3 years: I = $10,000 × 0.05 × 3 = $1,500. You end up paying back $11,500 total.
Where you'll encounter simple interest
Most consumer debt uses compound interest, but simple interest still shows up in several places: short-term personal loans, some auto loans (most now compound monthly, though), some private student loans, T-bills (technically a discount, but economically equivalent), and bonds issued at par that pay simple-interest coupons. Loan sharks and payday loans often use simple interest for the headline rate, then add fees that push the effective cost much higher.
Simple vs compound in a sentence
Simple interest charges you on the principal only; compound interest charges you on the principal plus all the previously accrued interest. The difference is small over short periods, but over 20-30 years compound interest can double the total paid compared to simple at the same rate.
Quick mental math
To estimate simple interest in your head, multiply principal by rate (in decimal) and by years. $20,000 at 4% for 5 years: 20,000 × 0.04 = 800/year × 5 = $4,000 total interest. That mental path gives you an instant approximation to sanity-check any lender's quote.
Use cases for this calculator
Quick loan estimates, evaluating bond interest, calculating late-payment penalties, estimating T-bill yield on a short hold, sanity-checking advertised loan numbers, and teaching basic finance. For real-world compounding scenarios (savings accounts, credit cards, investments), use the compound interest calculator instead.
Frequently asked questions
When is interest actually simple?▾
Most short-term loans (under 1 year), bridge loans, some auto loans, and certain private loans between individuals use simple interest. Bonds typically pay simple interest coupons. Most savings accounts and credit cards use compound interest instead.
Is simple interest better or worse for a borrower?▾
Better, at the same nominal rate. Since interest doesn't compound, the total you pay is lower than a compound-interest loan of the same rate and term. For a 5-year loan at 6%, simple interest costs ~30% of principal; compound interest costs ~34%.
Why don't credit cards use simple interest?▾
Because daily-compound interest earns the issuer more money. On a $5,000 revolving balance at 24%, simple interest would cost $1,200/year; daily compound interest costs roughly $1,354/year. That's a 12.8% revenue lift for the card issuer, which is why it became industry standard.
What's the formula?▾
I = P × r × t, where I is interest, P is principal, r is the annual rate (as a decimal, e.g., 0.05 for 5%), and t is time in years. Final amount = P + I. It's called 'simple' because it doesn't account for interest-on-interest.
How do fractional years work?▾
Scale the rate proportionally. For 6 months at 5%: I = P × 0.05 × 0.5 = 2.5% of principal. For 90 days: 0.05 × (90/365) ≈ 1.23%. This calculator accepts fractional years directly.
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