Simple Interest Calculator
The cleanest interest formula there is: I = P × r × t. Enter a principal, an annual rate, and a term in years, months, or days to get the interest and end balance — plus a side-by-side look at what annual compounding would have earned instead.
Principal vs. interest
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Compare ratesHow simple interest works
Simple interest never charges interest on interest: every period earns the same dollar amount, calculated once on the original principal. That makes it linear — double the time, double the interest. It shows up in auto and personal loans that accrue daily on the balance, Treasury bills, short-term notes, and penalty calculations, while savings accounts and credit cards compound. Over short terms the two methods barely differ; over years, compounding pulls ahead and never looks back.
How it’s calculated
I = P × r × t, with r as the annual rate in decimal form and t in years (months ÷ 12, days ÷ 365). End balance = P + I. The comparison line computes P × (1 + r)t — the same principal, rate, and time with annual compounding — and shows the difference.
Uses a 365-day year; institutions using a 360-day convention will differ slightly. Educational estimates, not financial advice.
Worked example
$10,000 at 6% simple interest for 5 years: I = 10,000 × 0.06 × 5 = $3,000, for an end balance of $13,000. The same money compounded annually would reach $13,382.26 — a $382.26 edge for compounding. Shorter terms shrink the gap: 18 months earns exactly $900 of simple interest, and a 90-day note earns 10,000 × 0.06 × (90⁄365) = $147.95.
Common mistakes
- Leaving the rate as a whole number in hand calculations — 6% must become 0.06 before multiplying.
- Forgetting to convert months or days into years before applying t.
- Using this formula for a savings account or credit card — those compound, and the real number will differ.
- Ignoring the day-count convention: /360 vs /365 changes daily interest by about 1.4%.
Where it is used
- Checking accrued interest on auto and personal loans that use daily simple interest.
- Pricing short-term notes, T-bills, and IOUs between businesses or friends.
- Homework and finance-class problems — with the steps visible.
Frequently asked questions
What is the difference between simple and compound interest?
Simple interest is charged only on the original principal, so it grows in a straight line. Compound interest is charged on principal plus accumulated interest, so it curves upward. On $10,000 at 6% for 5 years: $3,000 simple vs $3,382.26 compounded annually — and the gap widens every year.
What actually uses simple interest?
Most auto loans and many personal loans accrue simple interest daily on the remaining balance, as do Treasury bills, short-term promissory notes, late-payment penalties, and some bonds’ accrued interest between coupons. Savings accounts and credit cards, by contrast, compound.
How do days convert to time in the formula?
t must be in years, so days divide by the day-count convention. This calculator uses 365 (like most consumer products); some institutions use 360 — the “banker’s year” — which slightly increases daily interest. 90 days at 6% on $10,000: $147.95 at /365 versus $150.00 at /360.
Is my loan’s daily interest simple interest?
Usually yes: daily simple interest = balance × (annual rate ÷ 365), charged on the current balance. Paying early means less interest accrues and more of your payment hits principal — one reason paying a simple-interest loan a few days early every month quietly saves money.
Why is my answer different from the bank’s by a few cents?
Day-count conventions (365 vs 360 vs actual/actual), rounding rules, and when interest posts all cause penny-level differences. The formula is exact; institutions just apply slightly different calendars to t.