Finance
Simple Interest Calculator
Works simple interest, which applies to the principal only.
Result
Simple interest never compounds. Most consumer credit compounds, so use the compound interest calculator unless the agreement specifically says otherwise.
Get a Free Business AuditHow the calculation works
Principal times rate times time, with interest calculated on the original principal throughout rather than on a growing balance. It produces less than compound interest over the same period and rate, and it is used in some short-term lending and in certain loan structures.
What moves the number
- Principal, rate and time.
- Whether the arrangement is genuinely simple interest.
- Day count convention where the period is partial.
- Whether payments reduce the principal.
Where this one goes wrong
Most consumer borrowing and saving compounds rather than using simple interest, which means a simple interest calculation applied to a compounding arrangement understates the amount, sometimes considerably over a long period. Check which applies. Day count conventions also matter on partial periods, since different conventions divide the year differently and the difference is real on a large balance.
Before you quote
- Confirm whether the arrangement is simple or compound.
- Check the day count convention on partial periods.
- Use compound interest for anything over a long horizon.
Questions
About this calculator
When does simple interest apply?
In some short-term lending and particular loan structures. Most consumer borrowing and saving compounds, so applying simple interest to a compounding arrangement understates the amount, sometimes considerably over a long period.
How different is it from compound interest?
Over a short period, barely. Over a long one, substantially, because compound interest earns on the accumulated interest while simple interest never does. The gap widens with every period.
What is a day count convention?
The rule for dividing a year into days for a partial period, which differs between arrangements. On a large balance the difference between conventions is real money, which is why the terms specify which applies.
The formula
I = P × r × t
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How to use this calculator
- Principal ($). Enter your own figure; the page starts at $15,000.
- Annual interest rate (%). Enter your own figure; the page starts at 6%.
- Time in years. Enter your own figure; the page starts at 3.
The result updates as you type, so you can try a figure, see what it does to total interest, and change it back. Nothing you enter is sent anywhere or saved.
A worked example
These are the figures the calculator opens with. Every number in the results column below is produced by the same calculation the page runs, so you can follow it through before putting your own figures in.
What goes in
| Input | Value |
|---|---|
| Principal | $15,000 |
| Annual interest rate | 6% |
| Time in years | 3 |
What comes out
| Result | Value |
|---|---|
| Total interest main result | $2,700.00 |
| Total amount | $17,700.00 |
| Interest per year | $900.00 |
| Interest per month | $75.00 |
Simple interest on 15,000 at 6% for 3 years is $2,700.00, giving a total of $17,700.00.
How sensitive the answer is
Holding everything else steady and changing only principal, this is what happens to total interest. It is worth knowing which of your inputs the answer actually hinges on, and which barely move it.
| Principal ($) | Total interest |
|---|---|
| $7,500 | $1,350.00 |
| $11,250 | $2,025.00 |
| $15,000 example above | $2,700.00 |
| $22,500 | $4,050.00 |
| $30,000 | $5,400.00 |
Every other input is held at the example value while this one changes, which is not how a real job behaves. Treat it as a guide to which number matters most, not as five separate quotes.
What each figure means
- Principal ($)
- A money amount, starting at $15,000.
- Annual interest rate (%)
- A percentage, between 0 and 100, starting at 6%.
- Time in years
- A number, between 0 and 100, starting at 3.
What the results tell you
| Result | What it is |
|---|---|
| Total interest | The headline result. A money figure. |
| Total amount | A money figure. |
| Interest per year | A money figure. |
| Interest per month | A money figure. |
Rates and terms move
Loan and interest figures assume the rate and term you enter hold for the whole period. Variable rates, fees rolled into the balance and early-repayment terms all change the real cost.
Keep going
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