Simple Interest Calculator
Calculate simple interest on loans and investments
Fast, accurate calculations with clear results. Built for speed and ease of use.
Formula
I = P × r × tHow to Use Simple Interest Calculator
- Provide your input values.
- Understand the calculation method shown.
- Get immediate and accurate results.
- Use the output for planning or analysis.
Examples
Simple interest is the calculation behind short-term loans, certain car loans, and bonds that pay a fixed coupon, where interest is charged only on the original amount borrowed or invested, never on interest already accrued. It is the easier of the two interest models to reason about by hand, and it is also the one that costs a lender the least over a long term, which is why almost nothing that runs for decades actually uses it.
The formula
I = P x r x t- I
- the interest earned or owed
- P
- the principal amount
- r
- the annual interest rate as a decimal
- t
- the time in years
Worked example
Borrow $5,000 at 4% simple interest for 3 years. Interest is 5000 x 0.04 x 3 = $600, so the total you repay is $5,600 regardless of how the balance would have looked if interest had compounded instead. Run the same $5,000 at 4% compounded annually for 3 years and the interest comes to $624.32, about $24 more, because compounding lets year two and three earn interest on year one's interest.
What trips people up
- Simple interest does not reward waiting the way compound interest does. Doubling the term doubles the interest exactly, with no acceleration.
- Many lenders quote a simple interest rate but still compute it daily on a declining balance, which is not the same as the flat P x r x t formula.
- t must be in years. A 90 day loan needs t = 90 / 365, not 90.
- A simple interest rate and an APR are not automatically equal once fees are added to a loan.
Frequently asked questions
- Why would anyone use simple interest instead of compound?
- It is simpler to calculate and easier to verify by hand, which is why it shows up in short-term lending, certain promissory notes, and some bonds, where the term is short enough that the compounding gap barely matters.
- Is a car loan simple interest or compound interest?
- Most car loans are simple interest calculated daily on the outstanding balance, which behaves close to the flat P x r x t formula but is not identical to it, especially if a payment is late.
- Does paying off a simple interest loan early save money?
- Yes, because interest accrues only on the balance still owed. Paying down principal early reduces every future day's interest charge, even though the formula itself does not show this without recalculating.
- How do I handle a period given in days rather than years?
- Convert days to years by dividing by 365, or 360 in some commercial lending conventions, before using t in the formula, since the two conventions produce slightly different answers.
- Can the interest rate in this formula ever be negative?
- Only in unusual cases like negative interest rate policy environments; in ordinary lending r is positive, and a negative result would signal an input error rather than a real negative charge.