Simple Interest Calculator
Calculate simple (non-compounding) interest on loans and investments
Simple Interest Details
Enter your loan or investment details to calculate simple interest
How Simple Interest Works
Simple interest is calculated using the formula: I = P × R × T
- I = Interest amount
- P = Principal (starting amount)
- R = Interest rate (as a decimal)
- T = Time period (in years)
Unlike compound interest, simple interest does not "compound" or accumulate on previously earned interest. The interest is calculated only on the original principal amount.
This makes simple interest calculations straightforward and predictable, commonly used for short-term loans, auto loans, and some personal loans.
Simple vs. Compound Interest
Simple Interest
- Calculated only on principal
- Linear growth over time
- Lower total interest over time
- Common for short-term loans
Compound Interest
- Calculated on principal + accumulated interest
- Exponential growth over time
- Higher total interest over time
- Common for savings, mortgages, credit cards
Frequently Asked Questions
What is the difference between simple and compound interest?
Simple interest is calculated only on the original principal amount, while compound interest is calculated on the principal plus accumulated interest. This means compound interest grows faster over time, making it more expensive for borrowers but more profitable for savers.
When is simple interest used?
Simple interest is commonly used for short-term loans (less than one year), auto loans, and some personal loans. It's also used in certain investment instruments and promissory notes. Most mortgages and credit cards use compound interest instead.
How do I calculate simple interest manually?
Use the formula I = P × R × T, where I is interest, P is principal, R is the annual interest rate (as a decimal), and T is time in years. For example, $10,000 at 5% for 2 years: I = $10,000 × 0.05 × 2 = $1,000. Our calculator does this automatically and shows detailed breakdowns.
Is simple interest better than compound interest?
It depends on your situation. Simple interest is better for borrowers (lower total interest paid) but worse for savers (lower returns on investments). For short-term loans, the difference is minimal. For long-term financial products, compound interest makes a significant difference.
Can I use this calculator for my savings account?
Only if your savings account uses simple interest, which is rare. Most savings accounts use compound interest (daily, monthly, or quarterly compounding). This calculator is best for simple interest loans and certain types of bonds or notes. Check with your financial institution to confirm how they calculate interest.
How accurate is this calculator?
This calculator uses the standard simple interest formula and is mathematically accurate. However, actual loan terms may include additional fees, insurance, or other costs not captured by simple interest calculations. Always review your loan documents or consult with your lender for exact figures.