Simple Interest Calculator
Calculate simple interest for loans and investments using the formula I = P × r × t. Compare simple vs compound interest to see the difference in growth over time.
Initial investment amount
Annual rate percentage
Investment duration
Accurate Calculation
Calculate simple interest using the standard formula I = P × r × t with precision.
Compare Interest Types
See side-by-side comparison of simple vs compound interest to understand the difference.
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How Simple Interest Works
What is Simple Interest?
Simple interest is a method of calculating interest that is applied only to the principal amount. It does not compound, meaning you don't earn interest on previously accumulated interest. This makes it straightforward to calculate and understand.
Simple Interest Formula
I = P × r × t
I = Interest amount
P = Principal (initial amount)
r = Annual interest rate (as decimal)
t = Time period in years
The total amount is calculated as: A = P + I or A = P(1 + rt)
Example Calculation
Scenario: $10,000 investment at 5% annual interest for 3 years
- • Principal (P): $10,000
- • Rate (r): 5% = 0.05
- • Time (t): 3 years
- • Simple Interest: I = $10,000 × 0.05 × 3 = $1,500
- • Total Amount: A = $10,000 + $1,500 = $11,500
Simple vs Compound Interest
While simple interest calculates interest only on the principal, compound interest calculates interest on both the principal and accumulated interest. Over time, this leads to significantly different results:
- • Simple Interest: Linear growth - same interest amount each period
- • Compound Interest: Exponential growth - increasing interest each period
- • The longer the time period, the greater the difference between simple and compound interest
When is Simple Interest Used?
Simple interest is commonly used for short-term loans, car loans, personal loans, and some certificates of deposit. It's preferred when simplicity is important and the time period is relatively short. Many consumer loans use simple interest because it's easier for borrowers to understand their payment obligations.
Frequently Asked Questions
What is simple interest?
Simple interest is interest calculated only on the principal amount. The formula is I = P × r × t, where I is interest, P is principal, r is annual rate, and t is time in years. Unlike compound interest, simple interest does not earn interest on previously accumulated interest.
How do you calculate simple interest?
To calculate simple interest, multiply the principal amount by the annual interest rate (as a decimal) and the time period in years. For example, $1,000 at 5% for 3 years: I = 1000 × 0.05 × 3 = $150. The total amount would be $1,000 + $150 = $1,150.
What is the difference between simple and compound interest?
Simple interest is calculated only on the principal amount and remains constant each period. Compound interest is calculated on the principal plus accumulated interest, resulting in exponential growth. Over time, compound interest yields significantly more than simple interest at the same rate.
When is simple interest used?
Simple interest is commonly used for short-term loans, car loans, personal loans, and some certificates of deposit. It's easier to calculate and understand than compound interest, making it practical for straightforward lending situations.
How do I calculate the total amount with simple interest?
The total amount (principal + interest) is calculated as A = P(1 + rt), where P is principal, r is the annual rate (as decimal), and t is time in years. This combines the principal with the simple interest earned or owed.
Is my data private when using this calculator?
Yes, absolutely! All calculations happen entirely in your browser. Your financial information is never sent to any server, ensuring complete privacy and security.