Simple Interest Calculator
Calculate simple non-compounded interest returns or total repayment amounts over time.
Interest Breakdown
Interest that never earns interest
Simple interest is charged only on the original principal: multiply principal by rate by time and you have the whole answer. $10,000 at 5% pays $500 a year, every year, indefinitely. Nothing is added to the base, so the amount never changes — which is precisely what separates it from compound interest, where each period's interest joins the balance and earns in its own right.
Over a year the two are identical. Over a decade they diverge noticeably, and over thirty years they are barely the same instrument: $10,000 at 5% simple returns $25,000 in interest over thirty years, while the same sum compounded annually returns over $33,000. The gap is the interest that the simple version never allowed to earn.
Simple interest still appears in specific places — many car loans, short-term personal loans, certain bonds, and most legal judgments — and where it does, it favours the borrower. It is also the basis of accrued interest between bond coupon dates. When comparing any two borrowing offers, check which basis each uses before comparing the rates: the same nominal percentage means different money depending on the answer.
Frequently asked questions
What is simple interest formula?
Simple Interest formula is I = P × r × t, where P is principal, r is interest rate, and t is time in years.
What is the difference between simple and compound interest?
Simple interest is calculated only on the principal: I = P x r x t. Compound interest is calculated on principal plus accumulated interest, so it grows faster. On $10,000 at 5% for ten years, simple gives $5,000 of interest while annual compounding gives about $6,289.
Where is simple interest actually used?
Most car loans, many personal loans, some short-term and bridging finance, and most bond coupon payments. In US auto lending, simple interest accrues daily on the outstanding balance, which is why paying early in the month reduces the interest charged.
Is simple interest better for a borrower?
For the same nominal rate and term, yes - you pay less than under compounding. But rates are not set in isolation, and a simple-interest loan at a high rate easily costs more than a compounding one at a low rate. Compare total cost or APR rather than the compounding convention.