Simple Interest Calculator
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Calculate interest using the simple interest formula I = P × r × t. Shows total interest earned and final amount.
Total Amount
$0
📐 Formula
I = P × r × t, where I = interest, P = principal, r = annual rate (decimal), t = time in years
How to Use the Simple Interest Calculator
Enter the principal
Input the original loan or investment amount — the starting balance before any interest applies.
Enter the annual rate
Input the interest rate as a percentage. For periods under one year, the calculator prorates the annual rate.
Set the time period
Enter duration in years. For partial years: 6 months = 0.5, 3 months = 0.25, 90 days ≈ 0.247.
Compare to compound
Note how the total diverges from compound interest over longer periods — this is why compound interest is so much more powerful for investment growth.
Simple Interest vs Compound Interest: The Key Difference
Simple interest calculates only on the original principal. Compound interest calculates on principal plus all previously accumulated interest. On a $5,000 principal at 8% for 3 years: simple interest = $5,000 × 0.08 × 3 = $1,200 interest, $6,200 total. Compound (annual): $6,298 — only $98 more over 3 years. Over 20 years: simple = $13,000; compound = $23,305 — a $10,305 difference on the same principal and rate. The divergence grows exponentially with time.
Where Simple Interest Is Used in Practice
Most US auto loans use daily simple interest on the outstanding balance — meaning early payments reduce interest charges, and late payments increase them, even within the same month. Short-term personal loans and some bridge loans also use simple interest. Student loans accrue simple interest during school, which then capitalises (converts to principal) at repayment start. Understanding which type of interest applies to a loan determines how to optimise your payment strategy — for simple-interest loans, even paying a few days early each month reduces total cost.
Simple Interest in Auto Loans: Pay Earlier, Pay Less
Most US auto loans use daily simple interest on the outstanding balance. This means every day you hold the loan, interest accrues on the current balance. Paying your car payment three days early each month eliminates three days of daily interest charges — a small but meaningful reduction over a 60-month loan. Conversely, paying three days late adds three days of interest. Unlike some mortgage structures, there is no fixed amortisation schedule that determines interest allocation — your actual payment date determines the exact interest and principal split for that payment.
Sources & Methodology
Calculations are based on the most current publicly available data from authoritative government and industry sources: