Simple Interest Calculator
Calculate simple interest easily with our free calculator. Determine interest earned on investments or paid on loans using the principal, rate, and time formula.
Category: Financial
Simple Interest
$2,500.00
Total amount: $12,500.00
Principal Amount
$10,000.00
Rate per Year
5%
Time Period
5 years
Formula Used
I = P × r × t
Calculation Breakdown
Interest = Principal × Rate × Time
$2,500.00 = $10,000.00 × 5/100 × 5 years
Interest Growth Over Time
- Total Amount
- Interest Earned
About Simple Interest
Simple interest is calculated only on the initial principal amount, or on that portion of the principal amount that remains unpaid. It's calculated using the formula: Interest = Principal × Rate × Time. Simple interest differs from compound interest, where interest is also charged on previously accumulated interest.
Simple interest is commonly used for:
- Short-term loans
- Car loans
- Consumer loans
- Some mortgages (in some countries)
- Some types of bonds
Simple vs. Compound Interest
With simple interest, interest is calculated only on the principal amount. With compound interest, interest is calculated on both the principal and the accumulated interest from previous periods, leading to interest on interest.
Example comparison:
$10,000.00 at 5% for 5 years:
Simple Interest
$12,500.00
Compound Interest (yearly)
$12,762.82
Frequently Asked Questions
What is simple interest?
Simple interest is calculated only on the initial principal amount, or on that portion of the principal amount that remains unpaid. It's calculated using the formula: Interest = Principal × Rate × Time. Simple interest differs from compound interest, where interest is also charged on previously accumulated interest.
When is simple interest typically used?
Simple interest is commonly used for short-term loans, car loans, consumer loans, and some types of bonds or fixed deposits. It's a straightforward way to calculate interest that doesn't account for compounding.
What's the difference between simple and compound interest?
With simple interest, interest is calculated only on the principal amount. With compound interest, interest is calculated on both the principal and the accumulated interest from previous periods, leading to interest on interest.
How can I calculate simple interest manually?
You can calculate simple interest using the formula I = P × r × t, where I is the interest, P is the principal (initial amount), r is the annual interest rate (in decimal form), and t is the time in years. For example, $1,000 at 5% for 2 years would earn $1,000 × 0.05 × 2 = $100 in interest.