Simple Interest Calculator
Calculate simple interest on your savings or loans. Find out how much interest you earn or owe based on principal, rate, and time period.
Simple interest is the oldest interest formula in finance: I = P × r × t, where I is interest, P is principal, r is the annual rate (as a decimal), and t is time in years. The formula traces back to ancient Babylonian and Roman lending records — long before compound interest became the norm, merchants and tax collectors computed interest as a flat percentage of the original loan for each period elapsed. It is the arithmetic cousin of compound interest: linear growth instead of exponential.
In modern US personal finance, simple interest survives in a handful of places. Most auto loans in the US are simple-interest loans — interest accrues daily on the outstanding principal, so paying early (before a payment is due) reduces the interest you owe. Treasury bills quote a simple-interest discount yield. Many short-term personal loans, some promissory notes, and certain municipal and corporate bonds use simple-interest conventions for short periods. Credit cards, mortgages, and most savings products do not — those compound.
The gap between simple and compound interest is the single largest source of long-horizon wealth creation (or destruction). At 7% annually for 40 years, $10,000 grows to $38,000 under simple interest but to about $150,000 under annual compounding — a roughly 4x difference that comes entirely from interest-on-interest. Over short horizons the gap is small; over a working lifetime it's the difference between a modest nest egg and financial independence. Use this calculator for short-term loan pricing, auto-loan payoff modeling, Treasury-bill yields, and back-of-envelope interest estimates — and use the compound interest calculator whenever the horizon exceeds a few years. This free tool is educational and not investment advice.
Quick answer: Simple interest uses the formula I = P × r × t (no compounding). A $10,000 loan at 5% for 5 years accrues exactly $2,500 in interest for a total of $12,500 repaid — unlike compound interest, it doesn't charge interest on interest. Enter your principal, rate, and term below to calculate.
Inputs
Quick presetsThe original loan balance or deposit the interest is computed on — never grows with unpaid interest under simple interest.
Quoted APR as a percentage. For simple-interest products APR equals the effective rate since there is no compounding.
Time in years. Enter 0.5 for six months, 0.25 for a quarter — fractions work for short-dated T-bills and bridge loans.
Results
How to use this calculator
Enter three values. **Principal** is the starting loan balance or deposit — the original amount the interest is computed on. Under simple interest, the principal never grows with unpaid interest the way it does under compounding. **Annual interest rate** is the quoted rate (APR) as a percentage; for simple-interest products, APR and effective rate are the same since there's no compounding to capitalize.
**Time period** is in years. For fractional years (like a 6-month T-bill), enter 0.5. The calculator returns three outputs: interest earned (or owed), total amount at the end (principal plus interest), and monthly interest — useful for seeing the per-month carrying cost of a simple-interest loan. A common use case: a $20,000 auto loan at 7% for 5 years produces $7,000 in simple interest — but actual loans amortize, so the real total interest paid is lower because the balance declines each month. Use the loan-payment calculator for amortizing loans.
Worked examples
Jenna, 6-month T-bill on $50,000
Jenna has $50,000 in cash and buys a 6-month US Treasury bill quoted at 5.1% annualized. Using simple interest: I = $50,000 × 0.051 × 0.5 = $1,275 in interest over six months. At maturity she gets back $51,275. T-bills are quoted on a discount basis, so she actually paid about $48,725 upfront and received $50,000 at maturity — same $1,275 return. Treasury interest is exempt from state and local tax, which is the bonus if you live in a high-tax state like California.
Carlos, 5-year simple-interest auto loan
Carlos finances a $25,000 used car at 6.5% APR on a 5-year simple-interest auto loan. Pure simple-interest math: I = $25,000 × 0.065 × 5 = $8,125 total interest, total paid $33,125. But because he amortizes (paying roughly $489/month), the balance declines each month and daily interest is computed on a shrinking principal — his actual interest paid is around $4,353, not $8,125. The calculator's simple-interest number is the no-payment upper bound; the real cost on an amortizing loan is roughly half that.
Priya, 90-day bridge loan on a renovation
Priya fronts a $180,000 bridge loan to a contractor at 11% simple for 90 days while a bank refi closes. Using t = 90/365 ≈ 0.2466: I = $180,000 × 0.11 × 0.2466 ≈ $4,882. At day 90 she is repaid $184,882 in a single bullet payment — no amortization, no compounding, just the flat carry. Because the loan is sub-year, the compounding gap versus a compound-interest quote is under $15, which is why short-term private credit still routinely prices in simple-interest terms.
Frequently asked questions
What's the exact formula?
I = P × r × t. Interest equals principal times annual rate (as a decimal) times time in years. Total amount A = P + I = P × (1 + r × t). Unlike compound interest, the rate is applied only to the original principal — it never compounds on accumulated interest.
When is simple interest actually used?
Most US auto loans (simple-interest, daily accrual), Treasury bills, some short-term personal loans, certain promissory notes, and some bond yield conventions. Savings accounts, CDs, mortgages, and credit cards all use compound interest. If a product doesn't specify, assume compound.
How big is the gap vs. compound interest?
Small over short periods, huge over long ones. At 7% for 5 years on $10,000: simple = $13,500, compound = $14,026 — only 4% more. At 7% for 40 years: simple = $38,000, compound = $149,745 — almost 4x. Compounding is a long-horizon phenomenon, which is why starting to invest early matters more than investing more.
What is the Rule of 78?
A simple-interest prepayment method where more of the interest is front-loaded into early payments. On a 12-month loan, the first payment's interest is 12/78 of the total, second is 11/78, and so on. It penalizes borrowers who pay off early. Some states have banned it for consumer loans; check your loan documents if prepaying.
How do auto loans really work?
Most US auto loans are simple-interest loans that accrue daily. Paying early within a month reduces the interest for that cycle because the daily balance drops. Making extra principal payments accelerates payoff and reduces total interest. 'Precomputed' auto loans (using Rule of 78) still exist in some states — read the contract before signing.
Is simple interest ever better for the borrower?
Yes — for short-term borrowing, simple interest is always equal to or cheaper than compound interest at the same rate. If you must borrow, a simple-interest loan with the option to prepay is the most borrower-friendly structure. For lending or saving, the opposite is true: you want compounding in your favor.
Does inflation affect simple interest?
Inflation erodes the real purchasing power of both principal and interest. If a simple-interest T-bill pays 5% and inflation is 3%, your real return is about 2%. The calculator shows nominal interest — for real (inflation-adjusted) returns, subtract expected inflation from the rate or use a separate inflation calculator on the final amount.
Why do most financial products use compound interest instead?
Compounding better reflects economic reality: unpaid interest is itself capital that can earn (or cost) more interest. Compound interest aligns with how money actually moves — any unpaid balance is effectively a new loan. Simple interest is a simplification useful for short horizons or regulatory reasons, but compound is the more accurate model of time value of money.