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Simple Interest Calculator

Calculate simple interest on any loan or deposit. Compare with compound interest to see the difference. We're building this calculator now — check back soon.

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What This Simple Interest Calculator Does

Simple interest is calculated only on the original principal amount — interest does not compound on previously earned interest. This calculator computes interest earned or owed on a principal amount over a specified time period at a given annual rate, making it useful for evaluating certain personal loans, auto loans, short-term business loans, some savings products, and for understanding the foundational math before tackling compound interest calculations.

How It Works

The simple interest formula is:

I = P × R × T

Where I is interest earned/paid, P is the principal (original amount), R is the annual interest rate (as a decimal), and T is time in years. Total amount at the end of the period is:

A = P × (1 + R × T)

For example, $10,000 at 6% simple interest for 3 years earns $10,000 × 0.06 × 3 = $1,800 in interest, for a total of $11,800. With compound interest at the same rate, the total would be higher: $10,000 × (1.06)³ = $11,910.

Key Concepts Explained

Simple vs. Compound Interest

Simple interest grows linearly — the same dollar amount of interest is added each period. Compound interest grows exponentially — each period's interest is added to the principal, so the next period's interest is calculated on a larger base. For short periods and low rates, the difference is small. For long periods or high rates, compound interest grows dramatically faster.

When Simple Interest Is Used

Simple interest is commonly used for: short-term personal loans, auto loans (in the US, most auto loans are simple interest), some student loans, Treasury bills, commercial paper, and certain savings bonds. Credit cards use a daily periodic rate applied to your average daily balance — which is a form of compound interest, not simple interest, despite what the math might suggest at first glance.

Rule of 72 for Simple Interest

The traditional Rule of 72 estimates doubling time for compound interest. For simple interest, doubling time is simply 100% ÷ annual rate. At 6% simple interest, a principal doubles in 100/6 ≈ 16.7 years. With compound interest at 6%, it doubles in 72/6 = 12 years — 4.7 years faster, illustrating the compounding advantage.

Tips & Best Practices

Pay auto loans early to save money — most US auto loans use simple interest, meaning you can reduce total interest paid by making extra principal payments or paying off early.

Use simple interest for quick mental math — for rough estimates over short periods (under 2 years), simple interest math gives a good approximation of compound interest.

Don't use simple interest to project long-term savings — savings accounts, investments, and mortgages use compound interest. Using simple interest math for 20+ year projections significantly understates actual growth (for savings) or total cost (for loans).

Understand the difference for payday loans — payday loan fees are often quoted as flat fees rather than interest rates. Converting the fee to an annual simple interest rate (fee/principal/days × 365) reveals APRs of 300–400% or more.

Verify whether your loan uses simple or compound interest — ask your lender or check the Truth in Lending Act disclosure, which must specify the APR and the basis for the calculation.

Frequently Asked Questions

Does simple interest benefit the borrower or lender?

Simple interest generally benefits borrowers compared to compound interest, because interest doesn't compound on unpaid interest. For a 1-year loan, both produce the same cost. For multi-year loans, compound interest accumulates faster and costs the borrower more. For savings, the lender (depositor) benefits from compound interest vs. simple interest.

Can I pay off a simple interest loan early?

Yes — and with simple interest loans, early payoff saves you money proportional to the time remaining. If you pay off a 5-year simple interest loan in 3 years, you pay only 3 years of interest instead of 5. Check your loan agreement for prepayment penalties, though most personal and auto loans today do not have them.

How do I convert a simple interest rate to APY?

For a single-period simple interest rate, the APY (Annual Percentage Yield, accounting for compounding) is higher than the simple interest rate for periods shorter than one year, and equal to it for exactly one year. For a 6-month investment at 5% simple interest (returning 2.5% in 6 months), the APY is approximately (1.025)² − 1 = 5.06% — slightly higher due to the compounding effect of rolling over twice per year.

What is the difference between simple interest and add-on interest?

Add-on interest calculates total interest on the full original loan amount and adds it to the loan upfront, then divides by the number of payments. It's common in some dealer-arranged auto financing. Because you're paying down principal with each payment but interest is calculated on the original amount, add-on rates have effective APRs roughly double the stated rate. A 6% add-on rate is approximately 12% APR.