Simple Interest Calculator
Simple interest is earned only on the original principal. Enter the numbers to get interest and total — with the compound comparison shown so you know what you give up.
| Total (principal + interest) | — |
| Compound interest would earn (yearly) | — |
| Compounding advantage | — |
The formula every finance class starts with
I = P × r × t
$10,000 at 6% for 5 years: 10,000 × 0.06 × 5 = $3,000 of interest, $13,000 total. Linear — the same $600 every year, because interest never earns interest.
Where simple interest actually appears
- Most car loans and many personal loans: interest accrues daily on the remaining principal — technically simple interest on a declining balance, which is why extra payments work so well.
- Short-term notes and bonds’ coupon math, treasury bills, and many private/family loans.
- Late fees and some student loans during certain periods.
Savings accounts and investments compound — after 5 years at 6%, compounding pays $3,382 vs $3,000 simple, and the gap explodes with time: at 30 years it is $18,000 vs $47,435. Same rate, different universes — see the compound interest calculator.
Frequently asked questions
How do I calculate simple interest?
Principal × rate × time: $10,000 × 6% × 5 years = $3,000. The total repayable or received is principal plus that interest.
What is the difference between simple and compound interest?
Simple interest pays only on principal — linear growth. Compound pays on principal plus accumulated interest — accelerating growth. At 6% over 30 years the difference on $10,000 is $18,000 vs $47,435.
Are car loans simple interest?
Most US car loans are simple interest on the declining balance: each payment’s interest portion is computed on what you still owe, so early extra principal payments cut total interest.
Why does anyone use simple interest?
Simplicity and regulation: short terms, legal judgments, bond coupons, and informal loans are easier to state and audit as P × r × t. For multi-year savings, compounding always describes reality better.
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Last updated: 2026-07-08