Simple Interest Calculator: Simple Interest

A Simple Interest Calculator can help you work out how much interest has been gained on savings or a loan over a set period of time. Interest is only calculated on the original principal.

In the US, simple interest calculations can be useful for working out some personal loan, short-term loan, car finance or investment scenarios. They can also help students, consumers and small business owners understand how interest rates affect the amount they will pay or receive.

For example, if you lent someone $5,000 at 6% simple interest per annum for 3 years, you could calculate how much interest they would pay you. As no interest is charged on the interest already earned, simple interest is easier to calculate than compound interest.

Using our Simple Interest Calculator tool you can get an estimate for how much interest you will earn, how much you will have to pay back or how much you will receive at the end of the period. Simply enter some details on the calculator to get a quick estimate of how much interest you will pay in USD.

How To Use The Simple Interest Calculator

To calculate simple interest:

Enter the principal. Enter how much money was borrowed, invested or saved. For example $5,000.

Enter the rate. Enter the interest rate as a percentage. For example 6%.

Enter the period. Enter for how long the money will be borrowed or invested. You can enter this in years or convert months to years.

Click calculate. This will calculate how much interest you will earn over the period.

View the results. This will show you how much interest you have earned and the total amount.

For example if you entered a principal of $5,000, an annual interest rate of 6%, and a period of three years, the calculator will estimate the total simple interest as $900.

Ensure that the rate and period are in the same units. If the rate is per annum then the period should be in years.

Simple Interest Formula

The simple interest formula calculates the interest based on 3 variables:

Simple Interest Formula:

SI = (P x R x T) / 100

Where:

SI = Total simple interest.

P = Principal.

R = Annual interest rate (as a percentage).

T = Period (in years).

To calculate the total amount:

A = P + SI

Where:

A = Total amount.

P = Principal.

SI = Total simple interest.

If you are given a period in months, you should convert this to years by dividing by 12. For example 18 months = 1.5 years.

This assumes that the principal, annual interest rate and method of calculation will remain the same throughout the period.

Example

If you were to borrow $5,000 at 6% simple interest per annum for 3 years.

Your details would be:

Principal = $5,000.

Rate = 6%.

Period = 3 years.

Using the simple interest formula:

SI = (P x R x T) / 100.

SI = ($5,000 x 6 x 3) / 100.

SI = $900.

Now calculate the total amount:

A = P + SI

A = $5,000 + $900.

Total amount = $5,900.

Summary:

Detail

Amount

Principal

$5,000

Rate

6%

Period

3 years

Simple Interest

$900

Total Amount

$5,900.

In this instance you would pay back $900 in interest over three years, bringing the total amount to $5,900 (assuming there are no extra fees or payments and that you are being charged simple interest for the entire period).

However, if you actually were to take out a loan in the US you should always check the terms of the loan as the lender may charge interest differently.

Understanding Your Results

A Simple Interest Calculator will usually give you 2 results:

Simple Interest. This is how much interest has been earned or charged over the period. No interest has been charged on the interest.

Total Amount. This is how much you originally had plus the interest calculated. If this was a loan it tells you how much you would have to pay back with the simple assumptions. If this was an investment it tells you how much you would have with the interest added.

Rate. The higher the rate the more interest will be earned. The rate is per annum so the higher the rate the more interest will be earned.

Period. The longer the period the more simple interest will be earned.

For example, you will earn $5,000 principal at 6% annual simple interest generates $300 per annum. After 3 years the total interest will be $900. Unlike compound interest the amount earned each year will be the same.

Factors That Affect The Result

There are several factors that can affect how much simple interest is earned.

Principal. The higher the principal, the more interest will be earned.

Rate. The higher the interest rate, the more interest will be earned. Always check if this rate is fixed or variable.

Period. The longer the period, the more simple interest will be earned.

Partial payments. If you make partial payments or pay off the principal early the interest may not match up with the calculation.

Fees. Loan origination fees, late fees etc. will not automatically be included.

Days. Some financial agreements will charge interest based on how many days there are. This will affect your total.

Terms. In the US the terms of the loan will dictate how you are charged interest, when you have to make payments and if you will incur any extra costs.

Benefits Of Using A Simple Interest Calculator

A Simple Interest Calculator can help you estimate how much you will pay to borrow money or how much interest you will earn.

Plan for a personal loan. Estimate how much interest you will be charged using simple interest.

Calculate interest on a short-term loan. If you have a loan or lending agreement that specifically uses simple interest then this calculator can help.

Estimate savings. Work out how much interest you would earn using simple interest.

Business finance. Estimate how much interest you would be charged on certain short-term loans/finance.

Educational. Help you understand principal, rate, period and interest.

Compare interest. See how much interest you would be charged hypothetically.

Plan your budget. Work out how much you would have to pay back based on the interest assumptions.

For example, if you were a small business owner you could calculate how much interest you would be charged on a $10,000 short-term loan at 5% simple interest for two years. The estimated interest would be $1,000. This would give you a total of $11,000 (before any fees or charges).

This can help you plan your budget. However, you should always check the terms of your loan.

Accuracy, Assumptions And Limitations

A Simple Interest Calculator will give you an accurate calculation based on the inputs and assumptions. However, this may not match up with what you would actually be charged or earn.

The standard formula assumes that the principal will be fixed, the interest rate will be the same each year and it will be calculated over a consistent period. It will not automatically account for compounding, partial repayments, extra money added, fees, tax or if the interest rate will change.

Some loans in the US will charge interest based on the daily balance or amortisation. This means that the interest will depend on how much you still owe and when you make payments. Therefore the simple interest formula may not give you the exact amount you would have to pay back.

This calculator will not automatically include the Annual Percentage Rate (APR). This can include certain loan fees. With savings accounts the Annual Percentage Yield (APY) will include compounding so may not be the same as simple interest.

When planning your finances, always check with your lender or financial institution that the calculation is being done correctly. This is just an estimate.

FAQs

1. What is simple interest?

Simple interest is when interest is calculated on the principal only.

2. How do I calculate simple interest?

Multiply the principal by the interest rate (as a decimal) by the period in years. For example $5,000 at 6% for three years produces $900.

3. What is the difference between simple interest and compound interest?

Simple interest is interest on the principal only. Compound interest is interest on the principal and interest. This means that over longer periods of time, you will see more growth if the rates and other factors are similar.

4. Can I calculate simple interest monthly?

Yes. When using an annual interest rate, convert the period to years. For example 6 months = 0.5 years. Or use a calculator that allows you to enter months.

5. Does simple interest change over time?

As long as the principal and rate stay the same, the amount of interest you will earn per year will stay the same. However, the more time there is, the more interest you will earn.

6. Can I use a simple interest calculator for an auto loan or mortgage in the US?

You can use this for an estimate if the agreement is using the same simple interest assumptions. Many auto loans and mortgages will use an amortisation schedule so it is more appropriate to use a loan or mortgage calculator to estimate how much you will pay per month and how much interest you will pay.

7. Is simple interest always cheaper than compound interest?

For the same positive rate, principal and period simple interest will usually give you less interest overall. However, it depends on the terms of your loan, when you make payments, any fees and how your interest is calculated.