Simple Interest Calculator
Interest and total on a principal at a flat (non-compounding) rate.
Input sheet
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Simple interest is the cleanest form of borrowing or lending: the rate applies only to the original principal, period after period, with nothing compounding. Many short-term and personal loans work this way.
How it works
Simple interest = principal × annual rate × years. Unlike compound interest, it is charged only on the original principal, never on accrued interest.
Because interest never earns interest, the total grows in a straight line — the same dollar amount accrues each year. That predictability makes simple interest easy to compare across offers and easy to verify on a statement.
It is the right model for many auto and personal loans and for bonds that pay a fixed coupon. It is the wrong model for savings accounts and credit cards, which compound; for those, use the compound interest calculator instead.
Interest = principal × annual rate × years; Total balance = principal + interest
Worked examples
$10,000 principal at 5% for 3 years → $1,500 interest, $11,500 total
$10,000 × 0.05 × 3 = $1,500 — exactly $500 per year, three years running.
$5,000 principal at 8% for 2 years → $800 interest, $5,800 total
$5,000 × 0.08 × 2 = $800, accruing $400 each year on the unchanged principal.
Tips & gotchas
- Simple interest always costs less than compound interest at the same rate and term — when you're borrowing, a simple-interest loan is the better deal.
- When you're investing, the opposite holds: compounding beats simple interest, and the gap widens with time.
- Confirm whether a loan is simple or compound before signing — the word 'APR' alone doesn't tell you, and the difference over a multi-year term is real money.
- For loans paid down monthly, interest each period is figured on the remaining balance, not the original principal — this calculator models a single fixed principal, ideal for a lump-sum note.
FAQ
How is this different from compound interest?
Simple interest never earns interest on interest — it stays on the original principal. Compound interest grows faster because each period's interest is added to the balance.
Where is simple interest actually used?
Common cases include short-term personal loans, many auto loans, some student loans, certificates with fixed payouts, and bond coupon interest. Credit cards and savings accounts use compounding instead.
What if the term is in months, not years?
Convert months to years by dividing by 12 — for example, 18 months is 1.5 years. Enter that decimal in the years field.
Does the rate need to be the annual rate?
Yes, enter the annual percentage rate. The formula multiplies it by the number of years, so a monthly or daily rate would give the wrong answer.
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