Simple Interest Calculator
Work out simple interest and the total payable on a principal, rate and time.
Simple interest
2,400
Total amount
12,400
Interest per year
800
8% of principal
Matures on
—
Interest = Principal × Rate × Time ÷ 100
Simple interest is calculated only on the original principal, unlike compound interest which also earns interest on previously accrued interest. This tool works out simple interest and the total amount payable given a principal, annual rate, and time period.
It's the calculation used for many short-term loans, certain bonds, and basic interest problems where compounding isn't part of the terms.
When simple interest is the right model
- Short-term personal or bridging loans, where the term is under a year and compounding would barely register.
- Many car loans and instalment purchases, which quote simple interest on the original balance.
- Bond coupon payments, calculated on face value and not compounding unless you reinvest them.
- Informal loans between individuals, where a flat percentage is the simplest fair arrangement.
- Classroom problems, which use it as the introductory case before compounding is introduced.
The gap that opens up over time
| Years at 10% on $5,000 | Simple | Compounded annually | Difference |
|---|---|---|---|
| 1 | $5,500 | $5,500 | $0 |
| 5 | $7,500 | $8,053 | $553 |
| 10 | $10,000 | $12,969 | $2,969 |
| 20 | $15,000 | $33,637 | $18,637 |
Identical for the first period, then increasingly divergent. As a borrower you want simple interest; as a saver you want compound.
Watch out for 'flat rate' loan quotes
Some lenders advertise a flat rate — simple interest calculated on the full original principal for the whole term — while you repay in monthly instalments. This sounds cheaper than it is, because you are being charged interest on money you have already paid back.
A 10% flat rate over three years works out roughly equivalent to an 18% reducing-balance rate. If a quote uses the word 'flat', ask for the effective annual rate before comparing it against anything else.
Frequently asked questions
- What's the simple interest formula?
- I = P × r × t, where P is principal, r is the annual interest rate (as a decimal), and t is time in years.
- When is simple interest used instead of compound?
- It's common for short-term loans, car loans, and some bonds, where interest doesn't compound over the loan term.
- Can I calculate for a period in months instead of years?
- Yes — enter the time in months and it will be converted to years internally for the calculation.
- Is a flat interest rate the same as the rate my bank quotes?
- Usually not. A flat rate charges interest on the full original principal throughout, so the effective reducing-balance rate is close to double. Always compare like with like.
- Which is better for a borrower, simple or compound interest?
- Simple, every time. At the same nominal rate over the same term, simple interest always costs the borrower less — and the gap widens the longer the loan runs.
Read more on this
- How loan interest actually worksWhy your early repayments barely touch the principal, what a 'flat rate' quote is really costing you, and how to compare two loan offers on the number that matters.
- SIP vs lump sum investing: when each works bestHow dollar-cost averaging shields you from bad timing, why lump-sum historically beats SIP in rising markets, and how to decide based on cash flow.
- Simple vs compound interest: the real difference, with numbersSimple and compound interest side by side on the same principal, rate and term — the exact rupee difference, and why compounding frequency itself changes the total.