Simple Interest Calculator
Calculate simple interest on loans or investments
Result
Total amount after 3 years
Principal
$10,000.00
Interest Earned
$1,500.00
How It Works
Overview
A simple interest calculator finds the flat interest charged or earned on a principal amount over a fixed period, ignoring any compounding. The interest grows linearly: every year you add the same dollar amount, regardless of how long the loan or deposit runs. This makes simple interest easy to predict and fair on short-term contracts.
Simple interest applies in narrower contexts than most people assume. Auto loans, Treasury bills, many bonds, and a handful of student and personal loans use it. Mortgages, credit cards, and most savings accounts do not — they compound. Always check the contract: a single phrase like "interest accrues daily on the outstanding balance" tells you which formula applies.
The Formula
Where:
- I = total simple interest in dollars
- P = principal (the original amount borrowed or invested)
- r = annual interest rate, expressed as a decimal (5% = 0.05)
- t = time the money is borrowed or invested, in years
The total amount returned at maturity is A = P + I = P × (1 + r × t). Because interest is never added back into the principal, doubling the time exactly doubles the interest — there is no exponential growth.
Worked Example
Suppose you lend a friend $5,000 for 4 years at a 6% simple annual rate:
- Principal: $5,000
- Rate: 0.06 per year
- Time: 4 years
- Interest: 5,000 × 0.06 × 4 = $1,200
- Total repayment at maturity: $6,200
Compare that to monthly compounding at the same 6%: the total would be roughly $6,352 — about $152 more. The difference is small over 4 years but balloons over longer terms because compound interest earns "interest on interest" while simple interest does not.
When to Use This
- Short-term personal loans — quickly check what a 6-month or 1-year flat-rate loan will cost.
- Auto loans with simple-interest contracts — most US car loans accrue simple interest daily on the unpaid balance.
- Treasury bills and short bonds — quoted yields often assume simple interest to maturity.
- Friends-and-family loans — easy to explain and calculate without spreadsheets.
- Comparing offers — sanity-check what a quoted rate translates to in actual dollars.
Common Mistakes to Avoid
- Assuming all loans use simple interest. Mortgages, credit cards, and most savings products compound. Read the contract.
- Mixing time units. Time must be in years if the rate is annual. For 90 days, enter 0.247 (90 ÷ 365), not 90.
- Using the nominal rate as a percent instead of a decimal. 5% is 0.05 in the formula. The calculator handles this automatically, but watch out when computing manually.
- Ignoring fees. Simple interest computes the rate cost only. Origination fees, prepayment penalties, and late fees aren't in I = P × r × t.
- Confusing simple interest with the APR. APR is regulator-defined and includes certain fees; simple interest is just the math on principal.
Frequently Asked Questions
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