Simple Interest Calculator
The Simple Interest Calculator computes interest charged only on the original amount at a flat annual rate, without compounding. It is commonly used for short-term loans, personal notes and some savings products.
What this means
With simple interest, the rate applies only to the original principal for the whole term. Unlike compound interest, earned or charged interest does not itself earn interest.
How we calculate it
Formula
Interest = P × r × t — where P is principal, r the annual rate and t the years. Total = P + Interest.Worked example
$1,000 at 5% simple interest for 3 years:
- 1Interest = 1,000 × 0.05 × 3 = $150
- 2Total = 1,000 + 150 = $1,150
Important assumptions
- Interest is computed once per year on the original principal.
- No interest is added to the principal during the term.
Frequently asked questions
Simple vs compound interest: what's the difference?
Simple interest is charged only on the original amount. Compound interest is charged on the balance, which includes previously accrued interest, so it grows faster.
When is simple interest used?
Short-term loans, installment notes, some auto loans and certain bonds or savings accounts. Check your agreement for the exact method.