Simple Interest Calculator
Free online simple interest calculator. Calculate simple interest, principal, rate, time, or total amount. Perfect for loans, savings, and financial planning with step-by-step calculations and formulas.
What is Simple Interest?
Simple interest is a method of calculating interest on a principal amount where the interest is calculated only on the original principal throughout the entire loan or investment period. Unlike compound interest, simple interest does not earn interest on previously accumulated interest.
Simple interest is commonly used for short-term loans, some savings accounts, and certain types of bonds. It's straightforward to calculate and easy to understand, making it ideal for basic financial planning.
Simple Interest Formula
The formula for calculating simple interest is:
I = P × R × T
A = P + I = P × (1 + R × T)
Where:
- I = Simple Interest
- P = Principal Amount (initial investment or loan)
- R = Annual Interest Rate (in decimal form)
- T = Time Period (in years)
- A = Total Amount (principal + interest)
Example Calculation
If you invest $10,000 at an annual interest rate of 5% for 3 years:
- Simple Interest = $10,000 × 0.05 × 3 = $1,500
- Total Amount = $10,000 + $1,500 = $11,500
Common Applications
- Short-term personal loans
- Auto loans and car financing
- Simple savings accounts
- Treasury bills and government bonds
- Certificate of deposits (CDs)
- Short-term business loans
- Student loans (some types)
- Quick financial estimations
Advantages of Simple Interest
- Easy to calculate and understand
- Predictable payment amounts
- Lower total interest compared to compound interest
- Better for borrowers on short-term loans
- Transparent calculation method
Tips for Using Simple Interest Calculator
- Always convert the interest rate to decimal form (5% = 0.05)
- Ensure time period matches the interest rate period (annual rate with years)
- For monthly calculations, divide annual rate by 12 and time by 12
- Compare simple interest with compound interest for long-term investments
- Use simple interest for quick estimates of loan costs
Simple Interest vs Compound Interest
The main difference is that simple interest is calculated only on the principal amount, while compound interest is calculated on both the principal and accumulated interest. For the same rate and time:
- Simple Interest: Interest stays constant each period
- Compound Interest: Interest grows each period as it's calculated on a larger base