How to Use the Simple Interest Calculator
- Enter the principal amount.
- Enter the annual interest rate as a percentage.
- Enter the time and choose years, months or days.
- Press Calculate.
- Read the total interest and the final amount.
Formula
Interest = P × r × t Total amount = P + Interest P = principal, r = annual rate as a decimal, t = time in years Months: t = months ÷ 12 Days: t = days ÷ 365
Example Calculation
Borrowing $5,000 at 5% simple interest for 3 years costs $5,000 × 0.05 × 3 = $750 in interest. The total repaid is $5,750, and interest is $250 every year.
What Is Simple Interest?
Simple interest is a fixed percentage of the original principal for each period. Because the base never changes, the interest is the same each year.
When Simple Interest Is Used
You will see it on short-term personal loans, certain promissory notes, some auto loans, bond coupons and in textbooks. Many everyday accounts compound instead, so read the terms carefully.
Simple vs Compound Over Time
Over a short period the two are close. Over many years compounding pulls well ahead. If you are a borrower on a long loan, simple interest on the original amount can be cheaper; if you are a saver, compound interest is preferable.
Tips
- Convert time to years consistently before applying the formula.
- Confirm whether the lender uses a 360-day or 365-day year.
- Check for fees that raise the effective cost.
Common Mistakes
- Entering the rate as a decimal (0.05) when the field expects a percent (5).
- Mixing months and years.
- Assuming a loan is simple interest when it compounds.
To see compounding in action, use the compound interest calculator.