Simple Interest Calculator
Calculate simple interest on loans and investments. Enter principal, interest rate, and time period to find total interest earned or owed.
How to Use This Calculator
Simple interest is calculated only on the principal amount. Here's how to calculate it:
- Enter the principal amount - this is the initial loan or investment amount.
- Input the annual interest rate as a percentage.
- Enter the time period in years (use decimals for partial years, e.g., 0.5 for 6 months).
- Click 'Calculate' to see the interest earned and total amount.
Why This Matters
Simple interest is used in many financial products including car loans, personal loans, and certificates of deposit. Unlike compound interest, simple interest is calculated only on the original principal, making it easier to understand and predict. Knowing how to calculate simple interest helps you compare loan offers, understand the true cost of borrowing, and make informed decisions about short-term investments and loans.
- Understand exactly how much interest you'll pay on a loan
- Compare different loan offers fairly
- Calculate returns on CDs and bonds that use simple interest
- Plan payments for interest-only loan periods
- Verify interest charges on financial statements
Worked Examples
Personal Loan
You borrow $5,000 at 8% simple interest for 2 years.
Short-Term Investment
Invest $10,000 in a 6-month CD paying 4.5% simple interest.
Car Loan Interest
A $20,000 car loan at 6.5% simple interest for 4 years.
Common Mistakes to Avoid
- Confusing simple interest with compound interest - compound interest grows exponentially, simple interest is linear.
- Using monthly rates when the formula calls for annual rates - convert monthly to annual by multiplying by 12.
- Forgetting to convert percentages to decimals - 8% should be 0.08 in the formula.
- Not converting time periods properly - 6 months = 0.5 years, 18 months = 1.5 years.
- Assuming all loans use simple interest - most mortgages and credit cards use compound interest.