What is simple interest?

Simple interest is calculated only on the original principal, not on accumulated interest. The formula is Interest = Principal × Rate × Time. It's straightforward and predictable.

How does simple interest differ from compound interest?

Simple interest applies only to original principal. Compound interest applies to principal plus accumulated interest. Over time, compound interest results in higher returns (for investments) or costs (for loans).

Where is simple interest commonly used?

Simple interest is used in auto loans, some personal loans, short-term loans, and certain savings products. Credit cards and mortgages typically use compound interest.

Is simple or compound interest better for savings?

Compound interest is better for savings because you earn interest on your interest. Over long periods, this creates significantly higher returns than simple interest.

How do I calculate simple interest manually?

Multiply principal by annual rate by time in years. For $10,000 at 5% for 3 years: $10,000 × 0.05 × 3 = $1,500 interest. Total received would be $11,500.

What is the simple interest rate on most auto loans?

Auto loans typically use simple interest calculated on declining balance. Rates vary from under 5% for excellent credit to 15%+ for poor credit, depending on lender and vehicle.

Can simple interest work against me?

Yes, with certain loans like auto loans, paying late or extending terms increases total interest. Simple interest loans still accrue daily interest, so payment timing matters.

How do I compare simple vs compound interest offers?

Calculate total interest for each over your planned timeline. A 6% simple interest loan may cost more or less than 5.5% compounded monthly depending on term length.

Simple Interest Calculator

Calculate interest using the simple interest formula

Instant results•No signup•Estimates only

Principal Amount

Interest Rate

Time Period

Total Simple Interest

$1,500.00

Total Value

$11,500.00

Annual Interest

$500.00

Comparison with Compound Interest

Compound Interest

$1,576.25

Difference

+$76.25

Visualization

Growth Projection

Total Value
Contributions

Final Value

$30,991

Total Contributed

$28,000

Earnings

+$2,991

Results are projections based on consistent contributions and rates.

Results are estimates for informational purposes only and do not constitute financial advice. Actual savings may vary based on interest rate changes, contribution consistency, and account terms.

How calculations work Full disclaimer

Simple Interest Calculator Formula

I = P \times r \times t

Interest (I) equals Principal (P) times annual Rate (r) times Time in years (t). Unlike compound interest, simple interest is calculated only on the original principal, not on accumulated interest.

How the Simple Interest Calculator Works

1Enter the principal amount
2Input the annual interest rate
3Specify the time period in years
4View the total interest earned
5See the final amount (principal plus interest)

Simple Interest Calculator Key Terms

Simple Interest: Interest calculated only on the original principal, not on any interest that has already been earned or charged.
Principal: The original amount of money deposited, invested, or borrowed before interest.
Linear Growth: Simple interest creates steady, predictable growth that increases the same amount each period.
Maturity Value: The total amount at the end of the term: principal plus all interest earned.

Simple Interest Calculator Tips

•Simple interest is rare for savings but common in some loans
•Auto loans and some personal loans use simple interest
•Paying early on simple interest loans saves more than compound loans
•Compare simple interest offers to compound to understand true returns
•Simple interest is easier to calculate and predict

When to Use This Simple Interest Calculator

✓Understanding basic interest calculations
✓Evaluating simple interest loans like some auto loans
✓Comparing simple versus compound interest
✓Quick estimation of interest costs or earnings
✓Educational purposes and financial literacy

Simple Interest Calculator Examples

Short-Term Loan

Principal:$5,000Rate:8%Time:2 years

Result:$800 interest

Simple interest: $5,000 × 8% × 2 = $800. Total repayment: $5,800.

CD Investment

Principal:$10,000Rate:5%Time:1 year

Result:$500 interest

A 1-year CD with simple interest earns $500 on a $10,000 deposit.

vs Compound Interest

Principal:$10,000Rate:6%Time:5 years

Result:$3,000 simple vs $3,382 compound

Simple interest yields $3,000; compound interest yields $382 more over 5 years.

Understanding Simple Interest in Depth

Simple interest represents the most basic form of interest calculation, charging or paying interest only on the original principal. While less common than compound interest in today's financial products, understanding simple interest provides a foundation for financial literacy.

Simple vs. Compound Interest

With simple interest, $1,000 at 5% for 3 years earns $50 each year for a total of $150. With compound interest, you'd earn $50 in year 1, then $52.50 in year 2 (5% of $1,050), then $55.13 in year 3. The difference grows dramatically over longer periods.

Where Simple Interest Appears

Simple interest is used in: some auto loans, certain personal loans, short-term promissory notes, some savings bonds, and introductory finance concepts. Most credit cards, mortgages, and savings accounts use compound interest.

Advantages of Simple Interest Loans

On a simple interest loan, every early payment reduces the principal immediately, and you're never charged interest on interest. This can make early payoff more impactful than with compound interest loans.

Calculation Example

A $15,000 auto loan at 6% simple interest for 4 years: Interest = $15,000 × 0.06 × 4 = $3,600. Total repayment is $18,600. Monthly payment is $18,600 ÷ 48 = $387.50. The math is straightforward and predictable.

Simple Interest Calculator FAQs

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Marcus Chen

Financial Analysis Specialist

Marcus has over 12 years of experience in quantitative finance and personal financial planning. He specializes in loan analysis, investment modeling, and consumer debt strategies. His methodologies incorporate industry-standard financial mathematics used by major lending institutions.

Content reviewed: January 2026Next review scheduled: 2027

Editorial Standards: All calculations use industry-standard financial formulas. Content is reviewed for mathematical accuracy and updated to reflect current market conditions. This tool provides estimates for informational purposes and does not constitute financial advice.