How to use this simple interest calculator
- Principal — the amount borrowed or invested.
- Annual interest rate — the yearly rate as a percentage. Even for short periods, simple interest rates are quoted per year.
- Time and time unit — the length of the loan or investment in years, months or days.
You get the interest, the total amount (principal plus interest), the interest per year and per day, and a comparison with what the same rate would produce with yearly compounding.
The simple interest formula
I = P × r × t
where I is the interest, P the principal, r the annual rate as a decimal (6% = 0.06) and t the time in years. Months are divided by 12 and days by 365 to convert them to years. The total amount owed or received is A = P + I = P × (1 + r × t).
The same formula can be rearranged to find any missing value:
- Principal: P = I ÷ (r × t)
- Rate: r = I ÷ (P × t)
- Time: t = I ÷ (P × r)
Worked examples
In years: $5,000 at 6% for 3 years earns 5,000 × 0.06 × 3 = $900, for a total of $5,900.
In months: $10,000 at 5% for 18 months: t = 18 ÷ 12 = 1.5 years, so I = 10,000 × 0.05 × 1.5 = $750.
In days: $1,000 at 3.65% for 100 days: t = 100 ÷ 365, so I = 1,000 × 0.0365 × 100 ÷ 365 = $10.00 — exactly 10 cents a day.
Finding the rate: if a $2,000 loan costs $240 in interest over 2 years, r = 240 ÷ (2,000 × 2) = 0.06, or 6% a year.
Simple vs. compound interest
With simple interest the interest each year is the same, because it is always calculated on the original principal. With compound interest, each year's interest is added to the balance and earns interest itself. Over a few months the difference is negligible; over decades it is enormous. For $10,000 at 6%:
| Years | Simple interest | Compound interest (yearly) | Difference |
|---|---|---|---|
| 1 | $600 | $600 | $0 |
| 5 | $3,000 | $3,382 | $382 |
| 10 | $6,000 | $7,908 | $1,908 |
| 20 | $12,000 | $22,071 | $10,071 |
| 30 | $18,000 | $47,435 | $29,435 |
As a borrower, simple interest works in your favor; as a saver, compounding does. See how your savings grow with our compound interest calculator.
Where simple interest is used
- Auto and personal loans. Many installment loans charge simple interest on the outstanding balance, usually calculated daily. Paying early or paying extra reduces the balance sooner and cuts the total interest. Our auto loan calculator shows the full payment schedule.
- Bond coupons. A bond pays a fixed coupon on its face value; the coupons are paid out rather than added to the principal.
- Short-term notes and loans between individuals, where interest is agreed as a flat percentage per year.
- CDs and accounts that pay interest out to another account instead of reinvesting it.
365 or 360 days?
This calculator uses a 365-day year, which is standard for most consumer loans. Some commercial loans use an "actual/360" convention, dividing the annual rate by 360 and charging it for every actual day. That produces about 1.4% more interest over a year (365 ÷ 360 ≈ 1.014), so check your loan agreement if the exact figure matters.
Results are estimates for information only; your loan or account documents show the exact terms.
Frequently asked questions
What is the difference between simple and compound interest?
Simple interest is always calculated on the original principal, so it grows by the same amount every period. Compound interest is calculated on the principal plus interest already earned, so it grows faster over time.
How do I calculate simple interest for months?
Divide the number of months by 12 to get years, then use I = P × r × t. For example, $4,000 at 9% for 8 months is 4,000 × 0.09 × 8/12 = $240.
How do I find the interest rate if I know the interest?
Rearrange the formula: r = I ÷ (P × t). If $3,000 earned $180 over 2 years, r = 180 ÷ 6,000 = 0.03, or 3% a year.
Is a car loan simple interest?
Many auto loans are simple interest loans: interest accrues daily on the remaining balance and each payment covers that interest first. Your loan contract states the method your lender uses.
Why do some lenders use a 360-day year?
It is a long-standing banking convention that simplifies calculations. Charging the annual rate ÷ 360 for each actual day results in slightly more interest than a 365-day year.
Last updated: October 8, 2026