Simple interest calculator
Work out simple interest — interest paid only on the original principal — plus the total amount and the equivalent monthly interest.
Interest is not compounded and no fees or taxes are included.
How this calculator works
Simple interest is the most straightforward interest calculation: each year you earn the same percentage of the original principal, and the interest itself never earns interest. Lending $10,000 at 5% simple interest for three years produces $500 a year, $1,500 in total, and a final balance of $11,500.
That is genuinely how many short-term loans, some bonds and peer-to-peer arrangements work. It is not how bank accounts, mortgages or credit cards work — those compound, meaning interest is added to the balance and starts earning interest itself. When comparing a simple-interest offer with a compounding one, convert both to an annual effective rate first, or the comparison will mislead.
The formula
For principal P, annual rate r (decimal) and time t (years):
interest = P · r · t
total = P · (1 + r · t)
monthly = P · r / 12The formula is linear in time: doubling the term doubles the interest. Compounding, by contrast, grows exponentially.
Worked example
Simple interest on 10,000 at 5% for 3 years is $1,500.00. The total balance is $11,500.00, and the interest works out to $41.67 a month while the principal stays unchanged.
Common mistakes
- Using simple interest for a mortgage. Mortgages, cards and most loans compound monthly. Simple interest understates the true cost over long periods.
- Mixing up rates and time. The formula needs the rate as a decimal and the time in years. A six-month term is 0.5 years, not 6.
- Ignoring the compounding alternative. At 5% for 30 years, compound interest produces roughly 4.3× the simple-interest amount on the same principal.
Frequently asked questions
Where is simple interest used?
Common uses include some car loans advertised on simple-interest terms, short-term personal loans, certain bonds and promissory notes, and simple interest savings arrangements between individuals.
What is the difference between simple and compound interest?
Simple interest is always calculated on the original principal. Compound interest is calculated on the principal plus previously earned interest, so it grows faster the longer it runs.
How do I convert simple interest to an annual effective rate?
If the simple interest is paid once at maturity, the effective annual rate is higher than the nominal rate for terms under a year, and the same or lower for longer terms. Use the compound interest calculator to compare precisely.
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