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Finance

Simple interest calculator

Interest charged on the original principal only.

What this calculator does

Simple interest is charged on the original principal for the whole term, with no interest on accumulated interest. It is the arrangement used for many short-term loans, some bonds and most informal lending between people. The arithmetic is straightforward, which is exactly why it remains common where terms are short.

Over one year, simple and compound interest give nearly the same result. The gap widens with time: over ten years at 8%, compound interest returns roughly a third more than simple interest on the same principal.

The formula

FormulaI = P · r · t / 100 A = P + I

Interest accrues at a constant amount per year, equal to the principal multiplied by the rate. Multiply by the number of years to get total interest, then add the principal for the final amount.

TermMeaning
IThe total interest over the whole period.
PThe principal: the original amount lent or deposited.
rThe annual interest rate as a percentage.
tThe time in years. Use decimals for part-years: 0.5 is six months.

The inputs explained

FieldWhat to enter
Principal ($)The original amount, before any interest.
Annual rate (%)The annual rate. If you have a monthly rate, multiply by 12 first.
Time (years)The term in years. Three months is 0.25, eighteen months is 1.5.

When to use it

Short-term or informal loans

Loans between family or friends are usually written as simple interest because it is easy to verify. Enter the amount, an agreed rate and the term to produce a figure both parties can check independently.

Checking an interest-only period

During an interest-only phase, the balance does not fall, so interest each period is exactly the simple interest on the full balance. This calculator gives that figure directly.

Comparing against compound interest

Run the same principal, rate and term through the compound interest calculator to see the difference. On terms under a year it is negligible; beyond five years it becomes the main story.

Late payment and penalty interest

Contractual penalty interest is commonly stated as a simple annual rate applied for the days overdue. Convert those days to a fraction of a year and enter it as the time.

Worked examples

Every figure in the tables below is produced by this page’s own calculator at build time, so the numbers and the tool always agree. Select any row to load that scenario.

Simple interest on $5,000 at different rates

Interest accrues at a flat rate against the original $5,000 in every row.

$5,000 over 3 years
Annual rateInterestFinal amountInterest per year
2%$300.00$5,300.00$100.00
4%$600.00$5,600.00$200.00
6%$900.00$5,900.00$300.00
8%$1,200.00$6,200.00$400.00
10%$1,500.00$6,500.00$500.00
15%$2,250.00$7,250.00$750.00
Because there is no compounding, the interest column is exactly proportional to the rate: doubling the rate doubles the interest precisely.

How the term affects a $10,000 loan at 7%

The interest per year is constant at $700, so the total simply accumulates.

$10,000 at 7%
TermInterestFinal amount
3 months$175.00$10,175.00
6 months$350.00$10,350.00
1 year$700.00$10,700.00
2 years$1,400.00$11,400.00
5 years$3,500.00$13,500.00
10 years$7,000.00$17,000.00
Over ten years this returns $7,000 of interest. The same money at 7% compounded annually would return closer to $9,700: the cost of the missing compounding.

Questions

When is simple interest used instead of compound?

Typically on short-term loans, some car and personal finance, bonds paying fixed coupons, and informal lending. Anything held for many years, savings, mortgages, investments, almost always compounds.

How do I enter a period in months?

Divide by twelve. Six months is 0.5, nine months is 0.75, eighteen months is 1.5.

Is simple interest better for a borrower?

For the same stated rate and term, yes: you pay less than you would under compounding. But rates on simple interest products are not necessarily lower, so compare total cost rather than the structure.

Can I use this for a daily rate?

Yes, if you convert. Multiply the daily rate by 365 to get the annual rate, then enter the number of days divided by 365 as the time.

For interest that earns interest, see the compound interest calculator. For a repaid-in-instalments loan, use the loan payment calculator.