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Simple Interest Calculator

What Is Simple Interest?

Simple interest is a method of calculating interest where the charge is applied only to the original principal amount, not on accumulated interest. The formula is 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. Unlike compound interest, simple interest grows linearly — you pay or earn the same amount each period. It's commonly used for auto loans, personal loans, some student loans, and certificates of deposit (CDs).

How to Calculate Simple Interest (I = Prt)

Step 1: Convert the rate from percentage to decimal by dividing by 100. Example: 8.5% becomes 0.085. Step 2: Express time in years. If you have months, divide by 12. If days, divide by 365 (or 360 for banker's convention). Step 3: Multiply: I = P × r × t. Example: $10,000 × 0.085 × 3 = $2,550 interest. The total amount owed or earned is A = P + I = $10,000 + $2,550 = $12,550.

Frequently Asked Questions

What is the simple interest formula?

I = P × r × t, where I = interest, P = principal, r = annual rate as decimal (divide percentage by 100), t = time in years. Total amount is A = P + I.

What is the difference between simple and compound interest?

Simple interest is calculated only on the original principal. Compound interest is calculated on principal PLUS accumulated interest. For a $10,000 loan at 5% over 5 years: simple interest = $2,500, compound interest (monthly) = $2,834. The difference grows over time.

What is the 360-day banker's year?

Some banks use a 360-day year (12 months × 30 days) instead of 365 days. This slightly increases interest charged because each day represents a larger fraction of the year (1/360 vs 1/365). Common in commercial loans and Treasury bills.

What types of loans use simple interest?

Auto loans, personal loans, some student loans, payday loans, and certificates of deposit (CDs). Mortgages, credit cards, and savings accounts typically use compound interest.

How do I calculate interest for months?

Divide months by 12 to get years. Example: 18 months = 1.5 years. Then use I = P × r × 1.5. This calculator does the conversion automatically.

Is simple interest better for borrowers?

Yes. Simple interest costs less because you only pay interest on the original balance, not on accumulated interest. As an investor, you want compound interest to maximize returns.

How much is daily interest on $10,000 at 6%?

Daily interest = ($10,000 × 0.06) ÷ 365 = $1.64 per day. Using the 360-day convention: $1.67 per day.

Can I use this for savings accounts?

This calculator works for any simple interest scenario — loans, CDs, bonds, or savings with simple interest. Most savings accounts use compound interest though, so use our Compound Interest Calculator for those.