Simple Interest Calculator

Simple interest is the most straightforward form of interest calculation: interest is earned or charged only on the original principal, not on accumulated interest. It's the foundational concept for understanding more complex interest calculations like compound interest.

The formula is elegantly simple: Interest = Principal × Rate × Time. If you borrow $10,000 at 6% per year for 3 years, you owe $1,800 in interest ($10,000 × 0.06 × 3), for a total repayment of $11,800.

Where simple interest is used in practice: Many car loans and personal installment loans use simple interest (also called add-on interest) calculated on the original balance — though how it's applied affects the actual cost. Some US Treasury bonds use simple interest calculations. Short-term business loans and bridge financing often use simple interest. Promissory notes between individuals commonly use simple interest.

Simple interest is always cheaper for borrowers than compound interest at the same rate, because compound interest charges interest on accumulated interest. On a $10,000 loan at 8% over 5 years: Simple interest = $4,000 total interest. Compound interest (monthly compounding) = $4,898 total interest. The difference grows with time and rate.

For savings, compound interest is dramatically better. On a $10,000 savings account at 5% over 10 years: Simple interest = $5,000 earned. Compound interest (monthly compounding) = $6,470 earned. Compound interest wins because each month's interest is added to the balance and earns interest itself.

In practice, almost no savings accounts or investments use simple interest anymore — compound interest is universal. But understanding simple interest is foundational for understanding loan cost comparisons and basic financial literacy.