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
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.
| Term | Meaning |
|---|---|
| I | The total interest over the whole period. |
| P | The principal: the original amount lent or deposited. |
| r | The annual interest rate as a percentage. |
| t | The time in years. Use decimals for part-years: 0.5 is six months. |
The inputs explained
| Field | What 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.
| Annual rate | Interest | Final amount | Interest 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 |
How the term affects a $10,000 loan at 7%
The interest per year is constant at $700, so the total simply accumulates.
| Term | Interest | Final 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 |
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.