Simple Interest Calculator
Your Simple Interest:
$0.00
Total Amount (Principal + Interest):
$0.00
Understanding Simple Interest
Simple interest is a straightforward method of calculating the interest charge on a loan. It's based on the original amount of money borrowed (the principal), the interest rate, and the duration for which the money is borrowed. Unlike compound interest, simple interest is calculated only on the initial principal amount, meaning the interest earned or charged each period does not get added back to the principal for future interest calculations. This makes it a simpler, though often less advantageous for the lender or investor over longer periods, form of interest calculation.
How Simple Interest Works
The formula for simple interest is:
Simple Interest (SI) = (Principal × Rate × Time) / 100
Where:
- Principal (P): The initial amount of money that is borrowed or invested.
- Rate (R): The annual interest rate, expressed as a percentage.
- Time (T): The duration for which the money is borrowed or invested, usually expressed in years.
The total amount payable or receivable at the end of the loan or investment period is the sum of the principal and the calculated simple interest:
Total Amount = Principal + Simple Interest
When is Simple Interest Used?
Simple interest is commonly used in several financial scenarios, including:
- Short-term loans: Such as personal loans or payday loans, where the repayment period is relatively short.
- Certain types of bonds: Some bonds pay a fixed interest rate over their term.
- Calculating interest on savings accounts: While many savings accounts use compound interest, some might offer simple interest for specific promotional periods.
- Credit card interest (initial calculations): Although credit card interest compounds frequently, the base calculation for a single billing cycle often starts with simple interest principles.
Example Calculation
Let's say you take out a loan of $5,000 (Principal) with an annual interest rate of 6% (Rate) for a period of 3 years (Time).
Using the simple interest formula:
SI = ($5,000 × 6 × 3) / 100
SI = $90,000 / 100
SI = $900
The total interest you would pay over 3 years is $900.
The total amount you would repay is:
Total Amount = $5,000 (Principal) + $900 (Simple Interest) = $5,900
Our calculator above can help you quickly determine simple interest for any principal amount, rate, and time period you input.