Simple interest is a straightforward method of calculating the interest charged on a loan or earned on an investment. Unlike compound interest, which calculates interest on the initial principal amount plus any accumulated interest, simple interest is always calculated on the original principal amount only. This makes it easier to understand and predict, though it typically results in lower returns for investors and lower costs for borrowers over longer periods compared to compound interest.
The Simple Interest Formula
The formula for calculating simple interest is:
Interest (I) = P × r × t
Where:
P represents the Principal Amount: This is the initial amount of money borrowed or invested.
r represents the Annual Interest Rate: This is the rate at which the money grows per year, expressed as a decimal. For example, 5% would be written as 0.05.
t represents the Time Period: This is the duration for which the money is borrowed or invested, measured in years.
To find the total amount to be repaid or received at the end of the period, you add the calculated interest to the principal amount:
Total Amount (A) = P + I
or
Total Amount (A) = P + (P × r × t)
How the Calculator Works
Our calculator takes your input for the Principal Amount (P), the Annual Interest Rate (r), and the Time Period (t). It then applies the simple interest formula:
It converts the percentage rate into a decimal by dividing by 100.
It multiplies the Principal (P) by the decimal rate (r) and the Time (t).
The result is the total simple interest earned or paid over the specified period.
When to Use Simple Interest
Simple interest is commonly used in:
Short-term loans
Promotional offers with introductory interest rates
Certain types of bonds and savings accounts
Calculating interest on payday loans (though fees can significantly increase the effective cost)
It's important to note that for long-term investments or loans, compound interest generally leads to a much larger amount due to the "interest on interest" effect. Always consider the type of interest being applied when making financial decisions.
function calculateInterest() {
var principal = parseFloat(document.getElementById("principal").value);
var rate = parseFloat(document.getElementById("rate").value);
var time = parseFloat(document.getElementById("time").value);
var resultDiv = document.getElementById("result");
if (isNaN(principal) || isNaN(rate) || isNaN(time) || principal <= 0 || rate < 0 || time <= 0) {
resultDiv.innerHTML = 'Please enter valid positive numbers for all fields.';
resultDiv.style.backgroundColor = "#ffc107"; /* Warning yellow */
return;
}
// Convert rate from percentage to decimal
var rateDecimal = rate / 100;
// Calculate simple interest: I = P * r * t
var interest = principal * rateDecimal * time;
// Format the result to two decimal places
var formattedInterest = interest.toFixed(2);
resultDiv.innerHTML = 'Your Simple Interest will be: $' + formattedInterest + '';
resultDiv.style.backgroundColor = "var(–success-green)"; /* Reset to success green */
}