How to use the simple interest calculator
- Enter the principal — the amount borrowed or deposited.
- Enter the interest rate and whether it is per year or per month.
- Enter the time in years, months or days. For days, choose a 365-day or 360-day year.
The formula
I = P × r × t A = P + I = P × (1 + r × t) P = principal r = annual rate (decimal) t = time in years t = months ÷ 12 or days ÷ 365 (or 360)
Worked examples
- 3-year deposit: $5,000 at 6% → 5,000 × 0.06 × 3 = $900, total $5,900.
- 90-day note: $5,000 at 6% → 5,000 × 0.06 × 90 ÷ 365 = $73.97 (or $75.00 on a 360-day basis).
- Monthly rate: $1,000 at 2% per month for 18 months → 1,000 × 0.24 × 1.5 = $360.
Simple vs compound interest on $10,000 at 5%
| Years | Simple interest | Compound (yearly) | Difference |
|---|---|---|---|
| 1 | $500 | $500 | $0 |
| 5 | $2,500 | $2,763 | $263 |
| 10 | $5,000 | $6,289 | $1,289 |
| 20 | $10,000 | $16,533 | $6,533 |
| 30 | $15,000 | $33,219 | $18,219 |
For short periods the two are close; over decades compounding pulls far ahead.
Simple interest loans
Most US auto loans are simple interest loans: each day, interest is charged on the outstanding principal only. Paying early in the month or making extra payments reduces the principal sooner and lowers the total interest. Paying late does the opposite — more of the payment goes to interest. The monthly payment on such a loan is calculated with the standard amortization formula (see the car loan calculator), but the interest itself accrues simply on the balance.
Converting rates
- Monthly to yearly: multiply by 12. 1.5% per month = 18% per year (simple).
- Daily rate: divide the annual rate by 365. 18% a year ≈ 0.0493% a day.
- APR vs APY: APR is the simple annual rate; APY includes compounding and is always equal or higher.
Finding the rate, time or principal
The same formula can be rearranged. Rate: r = I ÷ (P × t). Time: t = I ÷ (P × r). Principal: P = I ÷ (r × t). For example, to earn $1,000 of interest in 2 years at 4%, you need 1,000 ÷ (0.04 × 2) = $12,500.
When simple interest is used in everyday life
Besides car loans, simple interest shows up in short-term personal loans between friends and family, some student loans while you are in school, late-payment interest on invoices, and court judgment interest. Certificates of deposit and savings accounts usually compound, so check whether a quoted rate is simple or compound before comparing offers.