Simple Interest Calculator

How It Works

Simple interest is the most straightforward way to calculate the cost or return of borrowing money. Unlike compound interest, it is always calculated on the original principal — the balance never grows to form a larger base.

The formula is:
SI = P × R × T / 100

Where SI is the simple interest, P is the principal amount, R is the annual interest rate as a percentage, and T is the time in years.

Total amount = P + SI

Worked example: You lend $5,000 at 8% per year for 3 years.
SI = 5000 × 8 × 3 / 100 = $1,200
Total amount = $5,000 + $1,200 = $6,200

This means the borrower repays $6,200 in total — $1,200 of that is interest.

Notice that each year, the interest is exactly the same: $5,000 × 8% = $400 per year × 3 = $1,200. There is no compounding.

When is simple interest used in practice? Short-term car loans and personal loans often use simple interest, meaning every payment goes first to accrued daily interest, then to principal. If you pay early, you save on interest because the daily rate is applied to a lower balance. Treasury bills (T-bills) use a variant of simple interest called discount yield. Some certificates of deposit pay simple interest at maturity. Payday loans and some installment contracts also state their charges as flat-rate simple interest — though the effective APR can be much higher.

Comparing simple and compound: On a 1-year loan, both methods give the same result. Over multiple years, compound interest grows faster. For a $10,000 principal at 5% for 5 years, simple interest yields $2,500 in total interest, while monthly compounding yields $2,834 — a 13% difference. For long-term investments, always prefer compound interest; for short-term loans, ask whether simple or compound is being applied.