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Formula
I = P × r × t, and Total = P + I
- I
- the interest charged or earned
- P
- the principal, the amount borrowed or deposited
- r
- the annual interest rate as a decimal (6% = 0.06)
- t
- the time in years (months ÷ 12, or days ÷ 365)
What simple interest is
Simple interest is calculated only on the principal, the original amount borrowed or deposited. Each year adds the same amount of interest, so the total grows in a straight line. $1,000 at 5% simple interest earns $50 every year: $50 after one year, $100 after two, $150 after three.
Compound interest works differently. The interest is added to the balance and earns interest itself, so each year’s interest is larger than the last. At the same rate, compound interest gives the larger total over any period longer than one compounding period, and the gap widens with time. The guide to simple vs. compound interest compares the two over different periods.
How to use the simple interest calculator
- Enter the principal: the amount borrowed or invested.
- Enter the annual interest rate as a percentage. If the rate is quoted per month, multiply it by 12 first.
- Enter the time and choose whether it is in years, months or days.
- The calculator shows the interest, the total of principal plus interest, and the time converted to years. The working line shows the exact multiplication.
Simple interest for days, months or years
The rate is annual, so the time must be in years too. The calculator converts it for you:
| Time unit | Conversion | Example |
|---|---|---|
| Years | used as entered | 3 years = 3 |
| Months | months ÷ 12 | 18 months = 1.5 |
| Days | days ÷ 365 | 73 days = 0.2 |
To find the exact number of days between two dates, such as a loan’s start date and its due date, use the date difference calculator and enter the result here.
Simple interest on $10,000: reference table
Interest only (not the total), for a principal of $10,000 that stays outstanding for the whole period.
| Annual rate | 3 months | 6 months | 12 months | 24 months | 36 months |
|---|---|---|---|---|---|
| 4% | $100.00 | $200.00 | $400.00 | $800.00 | $1,200.00 |
| 6% | $150.00 | $300.00 | $600.00 | $1,200.00 | $1,800.00 |
| 8% | $200.00 | $400.00 | $800.00 | $1,600.00 | $2,400.00 |
| 10% | $250.00 | $500.00 | $1,000.00 | $2,000.00 | $3,000.00 |
Because the relationship is linear, every figure scales in direct proportion. Doubling the time, the rate or the principal doubles the interest, and $5,000 earns exactly half of each amount shown.
Simple vs. compound interest side by side
$10,000 at 4% a year. The compound column uses monthly compounding, calculated the same way as the compound interest calculator.
| Years | Simple interest balance | Compound balance (monthly) | Difference |
|---|---|---|---|
| 1 | $10,400.00 | $10,407.42 | $7.42 |
| 3 | $11,200.00 | $11,272.72 | $72.72 |
| 5 | $12,000.00 | $12,209.97 | $209.97 |
| 10 | $14,000.00 | $14,908.33 | $908.33 |
| 20 | $18,000.00 | $22,225.82 | $4,225.82 |
| 30 | $22,000.00 | $33,134.98 | $11,134.98 |
Over a year the two methods differ by a few dollars. Over 30 years, compounding produces nearly twice as much interest as simple interest: $23,134.98 against $12,000.
How to calculate simple interest by hand
A period in months. $7,500 at 5.5% for 18 months.
- Convert the time to years: 18 ÷ 12 = 1.5.
- Convert the rate to a decimal: 5.5% = 0.055.
- Multiply: $7,500 × 0.055 × 1.5 = $618.75.
- Add the principal for the total: $7,500 + $618.75 = $8,118.75.
A period in days. $3,000 at 9% for 45 days.
- Convert the time to years: 45 ÷ 365 ≈ 0.123288.
- Multiply: $3,000 × 0.09 × 0.123288 ≈ $33.29.
365-day vs. 360-day years
Some lenders and money-market instruments count interest on a 360-day year, sometimes called the banker’s year. Dividing by 360 instead of 365 makes each day slightly more expensive. In the 45-day example above, a 360-day year gives $3,000 × 0.09 × 45 ÷ 360 = $33.75 instead of $33.29. The difference is small on one short loan but grows with the principal and the number of days. The simple interest calculator always uses 365, so check your loan or account documents for the day-count method if you need to match a statement to the cent.
Working backward: rate, time or principal
The formula I = P × r × t can be rearranged to solve for any one value when the other three are known:
- Rate: r = I ÷ (P × t)
- Time: t = I ÷ (P × r)
- Principal: P = I ÷ (r × t)
For example, a note that charges $450 of interest on $6,000 over 18 months has a rate of 450 ÷ (6,000 × 1.5) = 0.05, or 5% a year. To express the interest as a share of the principal instead, the percentage calculator gives the same 7.5% total for the whole period.
Real-life scenarios
Savings and CDs: interest paid out vs. reinvested
$5,000 at 6% for 3 years earns $900 of simple interest. If the interest were left in the account and compounded monthly instead, the same rate would produce $983.40 of interest. Some CDs and bonds pay interest out on a schedule rather than adding it to the balance; in that case the account itself behaves like simple interest, and any growth on the payouts depends on where the money goes next.
A simple interest auto loan
The CFPB describes a simple interest auto loan as one where interest is charged on the balance you still owe, daily or monthly. Paying early or paying extra reduces the balance sooner and therefore the interest. With precomputed interest, the total interest is set at the start and spread across the payments, so extra payments do not reduce interest in the same way. This calculator assumes no payments during the term; for a loan repaid monthly, use the loan calculator.
Simple interest on loans you repay over time
The formula assumes the full principal is outstanding for the whole period. That fits a loan repaid in one lump sum at the end, or a deposit whose interest is paid out rather than reinvested.
Most installment loans are different. When you make monthly payments, part of each payment reduces the balance, and interest is charged only on what you still owe. A “simple interest” auto loan works this way: interest is simple in that it is never charged on unpaid interest, but the balance it is charged on falls each month.
Common mistakes
- Mixing time units. Entering 6 for six months while the unit is set to years gives 12 times too much interest.
- Entering a monthly rate as annual. A rate of 1.5% a month is 18% a year.
- Treating the rate as an APR. An APR includes certain fees as well as interest. Use the stated interest rate here.
- Assuming the day count. A 360-day year produces slightly more interest than the 365-day year used here.
- Using simple interest for a long savings horizon. If interest stays in the account and compounds, simple interest understates the balance more each year.
Glossary
- Principal. The amount borrowed or deposited, on which simple interest is calculated.
- Simple interest. Interest charged or earned on the principal only, never on earlier interest.
- Day-count convention. The rule for converting days to a fraction of a year, such as actual/365 or actual/360.
- APR (annual percentage rate). A yearly measure of the cost of credit that includes the interest rate and certain fees.
- Precomputed interest. A method where the total interest is calculated at the start of a loan and built into the payments.
Worked examples
A three-year personal loan
$5,000 borrowed at 6% simple interest for 3 years.
Inputs: Principal = $5000; Annual interest rate = 6 %; Time = 3; Time unit = Years
I = $5,000.00 × 0.06 × 3 = $900.00
Answer: Simple interest on $5,000.00 at 6% for 3 years: $900.00 (total $5,900.00).
A short-term loan counted in days
$2,000 at 8% a year for 90 days, using a 365-day year.
Inputs: Principal = $2000; Annual interest rate = 8 %; Time = 90; Time unit = Days (365-day year)
I = $2,000.00 × 0.08 × 0.2466 = $39.45
Answer: Simple interest on $2,000.00 at 8% for 90 days: $39.45 (total $2,039.45).
Interest over a period in months
$25,000 at 4.2% simple interest for 6 months, with interest paid out rather than reinvested.
Inputs: Principal = $25000; Annual interest rate = 4.2 %; Time = 6; Time unit = Months
I = $25,000.00 × 0.042 × 0.5 = $525.00
Answer: Simple interest on $25,000.00 at 4.2% for 6 months: $525.00 (total $25,525.00).
Assumptions and limitations
- Interest is calculated on the original principal only. It is never added to the balance to earn further interest.
- The rate is a fixed annual rate for the whole period.
- Months are converted to years by dividing by 12, and days by dividing by 365. Some lenders use a 360-day year or count actual days, which gives a slightly different result.
- No payments are made during the period, so the principal stays the same. On a loan where you repay as you go, interest is usually charged on the falling balance instead.
- Fees, APR differences, taxes and inflation are not included.
Frequently asked questions
Where is simple interest used?
It is common for short-term loans and notes, some bonds and certificates that pay interest out instead of reinvesting it, and as a quick estimate. Many auto loans are described as "simple interest" loans, meaning interest is charged each day or month on the balance still owed rather than added up front.
Why does my lender's figure differ slightly for a loan measured in days?
Lenders vary in how they count time. This calculator divides days by 365. A lender that uses a 360-day year charges a little more interest for the same number of days, and some count the actual days between two dates, including leap days.
Is simple interest always cheaper than compound interest?
Once the period is longer than one compounding period, simple interest gives a lower total than compound interest at the same rate, because interest is never charged on earlier interest. Over a year or two the gap is small; over many years it becomes large.
How do I find the interest rate if I know the interest charged?
Rearrange the formula to r = I ÷ (P × t). For example, $450 of interest on $6,000 over 18 months (1.5 years) gives r = 450 ÷ (6,000 × 1.5) = 0.05, or 5% a year. The same approach finds the time, t = I ÷ (P × r), or the principal, P = I ÷ (r × t).
How is daily interest worked out?
Divide the annual rate by the number of days in the year the lender uses, then multiply by the principal and the number of days. At 9% on $3,000, one day of interest is about $0.74 using a 365-day year, so 45 days comes to $33.29.
Does this calculator account for payments made during the term?
No. It assumes the full principal is outstanding for the whole period. If you repay part of the balance along the way, interest falls with the balance, and the loan calculator models that pattern for equal monthly payments.
How do you calculate simple interest on a loan?
Multiply the principal by the annual rate and the time in years. A $4,000 loan at 8% for 9 months costs $4,000 × 0.08 × 0.75 = $240 in interest, so $4,240 is due at the end. That assumes the whole amount is repaid in one lump sum; for a loan repaid in monthly installments, use the [loan calculator](/loan-calculator/).
Sources
- What's the difference between a simple interest rate and precomputed interest on an auto loan? — Consumer Financial Protection Bureau. Checked October 4, 2026.
- What is the difference between a loan interest rate and the APR? — Consumer Financial Protection Bureau. Checked October 4, 2026.
- Compound Interest (glossary) — U.S. Securities and Exchange Commission, Investor.gov. Checked October 4, 2026.