Simple Interest Calculator (I = P × r × t)
Enter principal, annual rate, and time in years. Calculates interest using I = P × r × t. Useful for short-term loans, bonds, and basic savings products that don't compound.
- Interest earned
- 1,500
- Total balance
- 11,500
How it works
Simple vs compound interest
Simple interest grows linearly: every period adds the same flat amount, calculated only on the original principal. The formula is I = P × r × t, where P is principal, r is annual rate as a decimal, and t is time in years. So $10,000 at 5% for 3 years earns exactly $1,500 — no more, no less, regardless of how often interest is paid.
Compound interest grows exponentially: interest earned in earlier periods itself earns interest in later periods. Same $10,000 at 5% for 3 years compounded annually grows to $11,576 — $76 more than simple interest. Over 30 years the difference is dramatic ($25,000 vs $43,219).
When you encounter simple interest
Auto loans and short-term personal loans often use simple interest, which is good for borrowers — your interest doesn't compound on unpaid interest. Most US auto loans, payday loans, and some business lines of credit are simple interest.
Bonds typically pay simple interest (the coupon) periodically rather than compounding internally. Treasury bonds, corporate bonds, and most fixed-income securities work this way. If you reinvest the coupons elsewhere, you can compound externally.
Some savings accounts, especially in inflation-conscious cultures, advertise as 'simple interest' to highlight how predictable the return is. These are rarer than compound accounts but easier to understand.
Limitations and pitfalls
Don't confuse advertised APR with actual yield. APR usually means simple interest equivalent over a year; APY (annual percentage yield) accounts for compounding within the year. A 5% APR loan with monthly payments effectively costs slightly more than 5%.
Time fractions: the formula uses years, but 6 months means 0.5, 90 days means roughly 0.247 (90/365). Be precise with the time unit if you're computing for a non-whole-year period.
Real-world quirks: late fees, prepayment penalties, and origination charges all sit outside the simple interest formula. If you're shopping a loan, ask for the total cost in dollars, not just the rate.
Frequently asked questions
›What's the simple interest formula?
I = P × r × t. Interest equals principal times rate (as decimal) times time in years. Total balance is principal plus interest.
›Is my loan simple or compound interest?
Most US auto loans, personal loans, and short-term loans are simple interest. Mortgages, credit cards, and student loans are typically compound. Read your loan agreement to confirm.
›How do I convert months to years?
Divide by 12. So 6 months = 0.5 years, 18 months = 1.5 years, 90 days ≈ 0.247 years (90/365).
›What's the difference between APR and APY?
APR is the simple-interest annual rate; APY accounts for compounding within the year. A 5% APR with monthly compounding gives 5.116% APY. For simple-interest products, APR ≈ APY.
›Why does compound interest grow faster over time?
Because compound interest pays interest on previously earned interest. After year 1 they're equal; after year 30 compound can be 70%+ higher than simple at the same rate.
›Can the rate be negative?
Mathematically yes — the formula handles it and returns negative interest (a loss). This rare scenario can apply to depreciation or some European bond markets in zero-rate periods.
›Should I prefer simple interest as a borrower?
All else equal, yes. Simple interest doesn't compound, so a missed payment doesn't grow exponentially. But check the actual rate; a high simple-interest rate can still beat a low compound rate.
›Does the data leave my browser?
No. All math runs locally; nothing is sent to a server.
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