๐งฎ Simple Interest Calculator
Interest on the original principal only: I = P x r x t.
Simple Interest Earned / Owed
Estimates for planning only, not financial advice.
How to Use This Calculator
Simple interest applies one flat rate to the original principal for the whole term, with no compounding. Enter the principal amount, the annual interest rate, and the time period, choosing years, months, or days as the unit. The calculator converts the time to years automatically and shows the interest, the total amount (principal plus interest), and the effective interest per month.
Enter the Principal, the starting amount the interest is charged on. This never changes during the calculation, which is the defining feature of simple interest.
Enter the Annual Rate as a percent, for example 6 for six percent per year. The calculator converts it to a decimal internally.
Enter the Time and pick Years, Months, or Days. Months are divided by 12 and days by 365 to convert to years before the formula runs.
Read the results: total interest, total amount due, and the monthly equivalent interest. Use the total amount to compare against compound-interest quotes on the same principal.
The Simple Interest Formula
P is the principal, r is the annual rate written as a decimal, and t is the time in years. The formula is linear: double the time and you exactly double the interest, which is not true of compound interest. Because unpaid interest is never added to the balance, each year costs the same as the last. That linearity is why simple interest is common on short notes and interest-only loans, where the term is too short for compounding to matter much, and rare on long mortgages, where compounding dominates.
Worked Example
Borrow $5,000 at 6 percent annual simple interest for 3 years. Interest = $5,000 x 0.06 x 3 = $900. Total repayment = $5,000 + $900 = $5,900, which is $163.89 per month if spread evenly. Compare that with the same loan at 6 percent compounded annually: $5,000 x (1.06)^3 = $5,955.08, or $955.08 of interest. The $55.08 gap is the interest-on-interest that compounding adds. Stretch the term to 20 years and the gap explodes: simple interest totals $6,000 while compounding totals about $11,036.
Where Simple Interest Shows Up
You will meet simple interest on many US auto loans, which use a simple-interest daily accrual method: interest accrues each day on the outstanding balance, and your payment covers that interest first. Pay a few days early and you pay slightly less interest; pay late and you pay slightly more. Some private notes, bridge loans, and Treasury bills also use simple-interest math. If your loan instead compounds monthly, like a credit card, carrying a balance costs more than the simple formula suggests, because each month's unpaid interest starts earning interest of its own. When comparing two loan offers, always confirm which method each lender uses before comparing rates.
Estimates for planning only, not financial advice.
Frequently Asked Questions
What is simple interest?
Simple interest is interest charged only on the original principal, never on previously accrued interest. The formula is I = P x r x t, where P is the principal, r is the annual rate as a decimal, and t is the time in years. Because the balance never grows, the interest charge is the same every period, which makes simple interest easy to predict.
What is the simple interest formula?
The formula is Interest = Principal x Rate x Time. For example, $5,000 at 6 percent annual interest for 3 years gives $5,000 x 0.06 x 3 = $900 of interest, for a total repayment of $5,900. If the time is in months, divide by 12 first; if it is in days, divide by 365.
When is simple interest used instead of compound interest?
Simple interest shows up in short-term personal loans, many auto loans, some student loans, and interest-only notes where the balance does not capitalize. Most mortgages, credit cards, and savings accounts use compound interest instead, because the lender or bank wants interest to earn interest. Always check your loan documents: the difference grows large over long terms.
How do I calculate simple interest for months or days?
Convert the time to years before multiplying. For months, divide by 12, so 9 months is 0.75 years. For days, divide by 365 (or 360 if your lender uses a bank year, which slightly increases the interest). This calculator does the conversion for you when you pick the time unit.
What is the difference between simple and compound interest?
With simple interest, you earn or pay interest only on the starting principal, so growth is a straight line. With compound interest, each period's interest is added to the balance, so growth curves upward over time. On $10,000 at 8 percent for 10 years, simple interest totals $8,000 while annual compounding totals about $11,589, a gap that widens every year.
Can simple interest ever be higher than compound interest?
Only in one edge case: if interest is withdrawn or paid out each period instead of being added to the balance, compounding never kicks in and the two are equal. Otherwise compound interest is always equal or higher than simple interest for the same rate and term. Simple interest is never the more expensive option for the borrower.