Simple Interest Calculator
Simple interest is calculated only on the original principal, so the yearly interest stays the same every year.
A simple interest calculator finds the interest earned or paid on a principal using the formula I = P x R x T / 100, where P is the principal, R is the rate, and T is the time in years. For example, $10,000 at 5% for 3 years earns $1,500 in interest, for a total of $11,500.
Simple Interest Calculator: How It Works
Simple interest is interest charged or earned only on the original amount of money, known as the principal. Unlike compound interest, the interest itself never earns additional interest, so the amount added each year stays exactly the same for the whole term. That makes simple interest easy to predict: if you know the principal, the annual rate, and the time period, you can work out the total cost or return with one short calculation.
The formula is I = P x R x T / 100. P is the principal, the starting amount borrowed or saved. R is the annual interest rate as a percentage. T is the time in years, and decimal values are allowed, so 6 months is entered as 0.5 years. Multiply the three values together and divide by 100 to get the interest. Add that interest to the principal to find the total amount. This method is common for short-term personal loans, some auto loans, and basic savings estimates. For a loan you are paying down month by month, a debt payoff calculator gives a fuller picture, because simple interest alone does not model monthly payments.
How to Use the Simple Interest Calculator
Using the calculator takes less than a minute. Enter your numbers, press calculate, and you will see the simple interest, the total amount, and the interest earned or paid per year.
- Enter the principal amount in dollars, for example 10000 for $10,000.
- Enter the annual interest rate as a percentage, for example 5 for 5%.
- Enter the time in years, using a decimal for part of a year, for example 2.5 for two and a half years.
- Press Calculate Interest to see the simple interest, the total amount, and the yearly interest.
Check that the rate you enter is the annual rate, not a monthly rate, or your result will be far too low. If you want to compare the yearly interest figure with what you earn at work, an hourly to salary calculator converts an hourly wage into an annual pay figure.
Simple Interest vs Compound Interest
The key difference is what the interest is calculated on. Simple interest is calculated only on the original principal, so the yearly amount never changes. Compound interest is calculated on the principal plus all interest earned so far, so the balance grows faster over time and the yearly interest amount increases each year.
Over a short period the difference is small, but over many years it becomes large. For example, $10,000 at 5% simple interest for 10 years earns $5,000, while the same amount compounded yearly grows to about $16,289, a gain of about $6,289. That is why savings accounts and investments usually benefit from compounding, while borrowers usually prefer simple interest. Most home loans use compound interest with monthly payments, so a biweekly mortgage calculator is a better fit for that kind of loan.
Simple Interest Examples
The table below shows three verified examples. Each one uses the formula I = P x R x T / 100, and the total is the principal plus the interest.
| Principal | Annual rate | Time | Simple interest | Total amount |
|---|---|---|---|---|
| $10,000 | 5% | 3 years | $1,500 | $11,500 |
| $25,000 | 9% | 2 years | $4,500 | $29,500 |
| $5,000 | 4% | 5 years | $1,000 | $6,000 |
Notice that the yearly interest in the first example is $500 every year, because 5% of $10,000 is always $500. In the second example the yearly interest is $2,250, and in the third it is $200. Once you know the yearly figure, you can judge whether a loan or a savings offer is worth it.
Frequently Asked Questions About Simple Interest
What is the formula for simple interest?
The formula is I = P x R x T / 100, where I is the interest, P is the principal, R is the annual interest rate as a percentage, and T is the time in years. Add the interest to the principal to get the total amount due or saved.
How do you calculate simple interest for partial years?
Convert the time into years as a decimal and use the same formula. Six months is 0.5 years, three months is 0.25 years, and 90 days is about 0.25 years. For example, $4,000 at 6% for 0.5 years earns $120 in interest.
Is simple interest better than compound interest?
It depends on which side you are on. Simple interest is better for borrowers because the cost stays lower over time. Compound interest is better for savers and investors because returns grow faster. Always check which method a loan or savings product uses before signing up.
What types of loans use simple interest?
Simple interest is common on short-term personal loans, some auto loans, and some student loans. Most mortgages and credit cards use compound interest instead, so their balances can grow much faster if only minimum payments are made.
Can simple interest be charged monthly?
Yes, but the rate must still be converted to an annual figure for the standard formula. A monthly rate of 0.5% equals an annual rate of 6%, so you would enter 6 as the annual rate and the time in years.
How is simple interest different from APR?
Simple interest is the method used to work out the interest amount. APR, or annual percentage rate, is a broader figure that includes the interest rate plus most fees and charges, so it shows the true yearly cost of a loan. Two loans can share the same interest rate but have different APRs.
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