Simple Interest Calculator
Calculate simple interest, total amount and compare with compound interest quickly.
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Frequently Asked Questions
What is the simple interest formula?
Simple Interest = Principal × Rate × Time (in years). For example: $10,000 × 8% × 5 years = $4,000 in interest. Total amount = $14,000. Simple interest is used in short-term loans, car loans and some savings accounts.
Simple interest vs compound interest — what is the difference?
Simple interest is calculated only on the principal. Compound interest is calculated on the principal plus accumulated interest. $10,000 at 8% for 10 years: simple interest = $8,000 total interest; compound interest = $11,589. The gap grows enormously over time.
When is simple interest used?
Simple interest is used for most auto loans, some personal loans, US Treasury bills and short-term loans. Mortgages, savings accounts, credit cards and most long-term investments use compound interest. Knowing which applies affects how you calculate true cost or return.
Simple interest examples and how they compare with compound interest
Simple interest is I = P x r x t: principal times the annual rate times time in years. It is charged on the original amount only, which is why it is used for most car loans, many personal loans, short term notes and some savings bonds. The table runs five cases and shows what the same money would earn if interest compounded monthly instead.
| Principal | Rate | Time | Simple interest | Compound (monthly) | Difference |
|---|---|---|---|---|---|
| $1,000 | 5% | 1 year | $50.00 | $51.16 | $1.16 |
| $2,500 | 3% | 6 months | $37.50 | $37.74 | $0.24 |
| $5,000 | 4% | 3 years | $600.00 | $636.36 | $36.36 |
| $10,000 | 6% | 2 years | $1,200.00 | $1,271.60 | $71.60 |
| $20,000 | 7.5% | 5 years | $7,500.00 | $9,065.89 | $1,565.89 |
The gap is small for short periods and low rates, and grows fast with time: at 7.5% over five years compounding adds 21% to the interest.
Worked example: $5,000 at 4% for 3 years
I = 5,000 x 0.04 x 3 = $600. The total repaid or received is $5,600. For a period in months, convert to years first: 18 months is 1.5 years, so $5,000 at 4% for 18 months is 5,000 x 0.04 x 1.5 = $300. For days, divide by 365 (some lenders use 360): 90 days is 0.2466 years, which gives $49.32.
Where simple interest shows up
Car loans in the United States are almost all simple interest, calculated daily on the outstanding balance, so paying a few days early saves a little and paying late costs a little. Personal loans from banks and credit unions mostly work the same way. Certificates of deposit and savings accounts usually compound, which is why the bank quotes an APY (compound) rather than an APR (simple). Treasury bills and short commercial notes quote simple interest for the term.
Solving for the other variables
The same formula answers three other questions. Rate: r = I / (P x t). If $10,000 earned $900 in 18 months, r = 900 / (10,000 x 1.5) = 6%. Time: t = I / (P x r). To earn $1,000 on $8,000 at 5%, t = 1,000 / 400 = 2.5 years. Principal: P = I / (r x t). If a note paid $450 of interest at 6% over 1.5 years, P = 450 / 0.09 = $5,000.
A common mistake
Treating a monthly rate as annual. A store card that says 2% a month is 24% simple a year, and over 26% once the compounding of unpaid balances is included. Always convert to the same time unit as t before multiplying.