Simple Interest Calculator
Calculate simple interest using the formula I = P × R × T. Find total interest earned, final amount, and compare results against compound interest to understand the difference over time.
Simple Interest Results
Simple Interest Formula
I = P × R × T
Where: I = Interest, P = Principal, R = Annual Rate (decimal), T = Time in years.
Total Amount = P + I = P × (1 + R × T)
Simple vs. Compound Interest Example
$10,000 at 8% for 10 years:
- Simple interest: $10,000 × 0.08 × 10 = $8,000 interest → $18,000 total
- Compound (monthly): $10,000 × (1 + 0.08/12)120 ≈ $22,196 total
- Difference: $4,196 more with compounding over 10 years
Where Simple Interest Is Used
Simple interest appears in short-term personal loans, some auto loans, most savings bonds, and Treasury bills. Because interest is calculated only on the original principal, the total interest cost is predictable and fixed — making it easier to budget for. Lenders who use simple interest typically calculate it on a daily basis, so paying early reduces the total interest you owe.
Converting Time Units
Always express time in years to match the annual rate. Divide months by 12 and days by 365 (some banking conventions use 360). For example, a 6-month loan uses T = 0.5, and a 90-day loan uses T = 90 ÷ 365 = 0.247.
Frequently Asked Questions
What is simple interest?
Simple interest is calculated only on the original principal — not on accumulated interest. Each period's interest is the same fixed amount: I = P × R × T. It does not compound, which makes it cheaper for borrowers over long periods compared to compound interest.
What is the difference between simple and compound interest?
Simple interest applies only to the original principal each period. Compound interest applies to both the principal and all previously earned interest. Over time, the gap grows significantly — at 8% for 20 years, a $10,000 investment earns $16,000 in simple interest but grows to $49,268 with monthly compounding.
Which loans use simple interest?
Simple interest is common in short-term personal loans, most car loans, and some mortgages where daily interest is calculated on the remaining balance. Credit cards and most long-term investments use compound interest instead.
Does paying early reduce simple interest?
Yes — with simple interest loans, paying down the principal early directly reduces the interest that accrues. This is different from amortized loans, where early payments have a larger effect because interest is calculated on the remaining balance each period.