Simple Interest Calculator

Four inputs produce the full result. Getting the units right matters more than anything else.

• Enter the principal - the amount you are borrowing or depositing. For a loan this is the amount you receive before any interest.
• Enter the annual interest rate as a percentage. Type 5 for 5%. The calculator converts it to a decimal for you.
• Enter the time period in years. For periods under a year use decimals: six months is 0.5, 90 days is about 0.25.
• Read the two figures it returns: the total interest (the cost of the borrowing) and the total repayment (principal plus interest).

The result is a flat projection - it assumes the same interest is charged on the original amount for the whole period, with no payments made in between. That assumption is exactly what makes simple interest useful as a baseline, and exactly where it stops matching real products.

Three variables, and each one has a trap attached:

• P - principal. The original amount. It stays fixed for the whole calculation, which is the defining feature of simple interest. The interest is always calculated on this figure, never on a growing total.
• r - annual rate. Express it as a decimal, so 5% becomes 0.05 and 7.5% becomes 0.075. This is the single most common error: entering 5 instead of 0.05 overstates the interest by 100 times.
• t - time in years. Express it in years, so 18 months is 1.5 and 90 days is roughly 0.25. Entering 18 months as 18 overstates the result by a factor of 12.

Because P, r and t never change, the interest produced is identical every period. A $10,000 balance at 5% generates exactly $500 in year one, $500 in year two, and $500 in year three - a straight line rather than a curve. That is the practical difference between simple and compound interest, and the next section puts numbers on it.

Same inputs for both methods - $10,000 principal, 5% annual rate - so the only difference is whether interest earns interest.

The gap is small at first and then accelerates. Over three years the difference is about $76 - barely noticeable. Over ten years it is $1,289, more than a quarter again as much as simple interest. The simple interest line grows at a constant rate; the compound line bends upward because each year's interest is calculated on a balance that already includes last year's interest.

For borrowing, simple interest is the cheaper structure. For saving, compound interest is the one you want working in your favour.

Simple interest is a clean model, but not every product uses it. Knowing which is which changes how much you should trust this figure.

• Some personal and short-term loans are quoted on a simple interest basis, particularly fixed-term products where the balance is not redrawn.
• Some auto loans are advertised as simple interest, though many are actually amortised, which behaves differently - see the note below.
• Bonds and coupon payments pay a fixed percentage of the face value, which is simple interest by definition.
• Payday and title loans often use flat simple interest, but at rates high enough that the structure is not the problem - the rate is.
• Late payment and overdraft fees are frequently charged as a flat amount or a daily simple rate.

Products that do not use simple interest: mortgages and most student loans compound and amortise, and credit cards compound daily - often several times a month. If you are checking a credit card balance or a mortgage payoff figure, this calculator will understate what you actually owe, because it cannot see the compounding frequency.

• Leaving the rate as a whole number. Entering 5 instead of 0.05 inflates the result one hundred times. If your answer looks absurdly large, this is almost always why.
• Putting months into the years field. 12 months belongs as 1, not 12. This error alone can make a result look twelve times too big.
• Assuming the product is simple interest. Check the loan documents. Compounding frequency is usually stated in the fine print, not the headline rate.
• Ignoring that a declining balance lowers the real cost. This is the most important one. The formula above charges interest on the full principal for the entire term. A loan you repay in instalments sees its balance shrink every month, so you never actually owe interest on the full amount. On a three-year loan repaid evenly, the average balance is roughly half the starting balance, so the real interest is often close to half of what this calculation shows. Treat the output as an upper bound, not a promise.
• Confusing simple interest with APR. APR folds in origination fees, administration charges and other costs. Two loans with the same headline rate can have very different APRs, so compare on APR rather than rate when you are shopping around.

The calculator returns two numbers, and only one of them should drive your decision.

• Total interest is the real cost of borrowing - or, if you are depositing, the real earnings. This is the figure to compare between offers.
• Total repayment is principal plus interest. Useful for budgeting, but misleading for comparison, because a larger loan will show a larger total while still being the cheaper deal per dollar borrowed.

When you compare two offers, put them side by side on total interest for an identical principal and term, not on the monthly payment. A lower monthly payment almost always means a longer term, and a longer term usually means more total interest even at a lower rate. Use the loan comparison calculator to test that trade-off directly, and the amortization calculator if you want to see how each payment splits between principal and interest.