Simple Interest Calculator
About the Simple Interest
This simple interest calculator works out the interest earned or owed when interest is calculated only on the original principal, never on accumulated interest. Simple interest is the transparent, predictable form of interest used for many short-term loans, some car finance deals, treasury bonds, and certificates of deposit. Unlike compound interest, it does not snowball, which makes the total interest over the term very easy to predict up front. The formula is delightfully simple: Interest = Principal × Rate × Time. If you borrow £10,000 at 5% per year for 3 years, the interest is £10,000 × 0.05 × 3 = £1,500, and the total to repay is £11,500. There is no interest on interest, so the figures stay straightforward and can be calculated by anyone on the back of an envelope — which is precisely why simple interest is still widely used for short-term lending. To use the calculator, enter the principal, the annual interest rate as a percentage, and the number of years, then press Calculate. It returns the total interest and the total amount you must repay or will receive. Swap in different rates and terms to see how the numbers move — for a short-term loan the difference between simple and compound interest is often negligible, but for longer terms or a revolving balance the gap becomes very large indeed. Simple interest is common in car finance, personal loans with a fixed payoff, student loans in many countries, and savings products like certificates of deposit (CDs) where interest is paid out rather than reinvested. If you want to compare it against a compounding product, use our compound interest calculator side by side — that is often the clearest way to see why compounding is powerful over long periods and why simple interest is best reserved for short, predictable borrowing.
How to use this tool
- Enter the principal — the amount borrowed or invested.
- Enter the annual interest rate as a percentage (e.g. 5 for 5%).
- Enter the term in years.
- Press Calculate to see the total interest and the total to repay or receive.
Common uses
- Understanding the true cost of a short-term personal or car loan
- Calculating interest on a fixed-term savings bond where interest is paid out
- Comparing simple-interest finance against compound-interest products
- Teachers, students, and finance learners checking their own working
Frequently asked questions
What is the simple interest formula?
Simple Interest = P × r × t, where P is the principal, r is the annual interest rate, and t is the time in years.
Simple vs compound interest — what is the difference?
Simple interest is calculated only on the principal. Compound interest is calculated on the principal plus accumulated interest, meaning it grows faster over time. For short-term loans the difference is minimal; for long-term investments compound is significantly better.
When is simple interest used?
Simple interest is common for short-term loans, car finance, savings products where interest is paid out, and short-dated bonds. It is simpler and more transparent than compound interest.
How do I calculate monthly simple interest?
Calculate the annual simple interest, then divide by 12 for monthly. For a £10,000 loan at 5% a year, the annual interest is £500 and the monthly interest is about £41.67.