Simple Interest Calculator

Simple interest calculates interest only on the original principal — it does not compound (no interest on interest). Formula: SI = P × R × T, where P = Principal (starting amount), R = Annual interest rate (as decimal), T = Time in years. Total amount = P + SI. Example: $5,000 at 5% for 3 years → SI = 5000 × 0.05 × 3 = $750. Total = $5,750. Simple interest is used in: car loans, personal loans, short-term loans, savings bonds, and some student loans. More common for short time periods where compounding hasn't had time to matter much.

Simple interest: interest calculated only on the original principal. Compound interest: interest calculated on principal + accumulated interest. Example: $1,000 at 10% for 3 years. Simple: Year 1: $100, Year 2: $100, Year 3: $100. Total interest: $300. Total: $1,300. Compound (annual): Year 1: $100 (on $1,000). Year 2: $110 (on $1,100). Year 3: $121 (on $1,210). Total interest: $331. Total: $1,331. Difference grows with time. Over 30 years at 7%: $10,000 simple = $21,000 vs $10,000 compound = $76,123. Compound interest is used by most savings accounts, mortgages, credit cards, and investments.

Rearranging SI = P × R × T: R = SI / (P × T). Example: You borrowed $2,000 and paid $360 interest over 2 years. R = 360 / (2000 × 2) = 360 / 4000 = 0.09 = 9% per year. Finding time: T = SI / (P × R). Example: $500 interest on $5,000 at 5%: T = 500 / (5000 × 0.05) = 500 / 250 = 2 years. Finding principal: P = SI / (R × T). Example: paid $150 at 5% for 1 year: P = 150 / (0.05 × 1) = $3,000. These formulas are useful for verifying loan terms and understanding what you're actually paying.

APR (Annual Percentage Rate) is the annual cost of borrowing expressed as a percentage. For simple interest loans, APR ≈ the stated interest rate. For compound interest loans, APR can differ from the stated rate. APY (Annual Percentage Yield) accounts for compounding: APY = (1 + r/n)^n − 1. Example: 12% APR compounded monthly → APY = (1 + 0.12/12)^12 − 1 = 12.68%. Truth in Lending Act (US) requires lenders to disclose APR. Credit cards with 24% APR compounded daily effectively charge ~26.8% APY. Always compare loans by APR, not just the stated monthly rate.

Simple interest loans: Auto loans (most US car loans use simple interest — extra payments reduce the principal and future interest). Personal loans. Installment loans. Some student loans (while in school, before capitalization). Simple interest mortgages (less common). Key benefit for borrowers: early payments reduce the principal faster, saving more interest. In a simple interest auto loan, the daily interest accrues: Daily rate = Annual rate / 365. Paying every 28 days vs 30 days saves money. Contrast: mortgages and credit cards typically use compound interest, making extra payments less immediately impactful on interest accrual.