Simple Interest Calculator
Calculate simple interest using the straightforward P×R×T formula with our free calculator. Simple interest is calculated only on the original principal, without compounding—making it common for auto loans, personal loans, and some bonds where interest is paid out rather than reinvested.
Simple vs Compound Interest Comparison
| $10,000 at 5% | 1 Year | 5 Years | 10 Years | 20 Years |
|---|---|---|---|---|
| Simple Interest | $10,500 | $12,500 | $15,000 | $20,000 |
| Compound (Annual) | $10,500 | $12,763 | $16,289 | $26,533 |
| Difference | $0 | +$263 | +$1,289 | +$6,533 |
The Simple Interest Formula
I = P × R × T (Interest = Principal × Rate × Time)
Where:
- I = Interest earned
- P = Principal (starting amount)
- R = Annual interest rate (as decimal)
- T = Time in years
Simple Interest Calculator
``javascript
function calculateSimpleInterest(principal, annualRate, years) {
const rate = annualRate / 100;
const interest = principal * rate * years;
const finalAmount = principal + interest;
// Monthly payment for a simple interest loan
const totalPayments = years * 12;
const monthlyPayment = finalAmount / totalPayments;
return {
interest: interest.toFixed(2),
finalAmount: finalAmount.toFixed(2),
monthlyPayment: monthlyPayment.toFixed(2),
averageAnnualInterest: (interest / years).toFixed(2)
};
}
// Calculate remaining balance at any point
function simpleInterestBalance(principal, rate, totalYears, yearsElapsed) {
const totalOwed = principal * (1 + (rate / 100) * totalYears);
const monthlyPayment = totalOwed / (totalYears * 12);
const paidSoFar = monthlyPayment * yearsElapsed * 12;
return (totalOwed - paidSoFar).toFixed(2);
}
`
Where Simple Interest Is Used
Simple interest is common in auto loans, personal loans, and student loans. It's also used for short-term borrowing, treasury bills, and situations where interest is paid out periodically rather than reinvested. Understanding simple interest helps you compare loan costs and recognize when compound interest would work against you (as a borrower) or for you (as an investor).
The Projection Behind This Page
Starting from $10,000, adding $200 a month at 7%:
| Year | Deposited | Balance | Growth | Growth on deposits |
|---|---|---|---|---|
| 1 | $12,400 | $13,201 | $801 | 6% |
| 5 | $22,000 | $28,495 | $6,495 | 30% |
| 10 | $34,000 | $54,714 | $20,714 | 61% |
| 20 | $58,000 | $144,573 | $86,573 | 149% |
After 20 years, 60% of the balance is growth rather than money you
put in. That crossover — the point where returns exceed contributions — is the whole reason
compounding is worth waiting for, and it arrives later than most people expect.The Formula
`
A = P(1 + r/n)^(nt) + PMT × [((1 + r/n)^(nt) − 1) ÷ (r/n)]
└── initial principal ──┘ └────── regular contributions ──────┘
`
The second term usually dominates. On these numbers the $200 monthly contribution
accounts for the larger share of the final balance, which is the practical lesson: how much
you add matters more than the rate, right up until the balance gets large.
How Long Until It Doubles
The Rule of 72 divides 72 by the rate to estimate doubling time. At 7%:
`
72 ÷ 7 = 10.3 years
`
The exact answer is 10.2 years — the rule is accurate to within a few months
for rates between 6% and 10%, and drifts at the extremes. It works because ln(2) ≈ 0.693 and
72 has convenient divisors.
| Rate | Rule of 72 | Exact |
|---|---|---|
| 2% | 36.0 yr | 35.0 yr |
| 5% | 14.4 yr | 14.2 yr |
| 7% | 10.3 yr | 10.2 yr |
| 10% | 7.2 yr | 7.3 yr |
| 15% | 4.8 yr | 5.0 yr |
Compounding Frequency at This Rate
A nominal 7% turns into a different effective yield depending on how often it
compounds — this page uses annually:
| Compounded | Effective annual yield |
|---|---|
| Annually | 7.000% |
| Quarterly | 7.186% |
| Monthly | 7.229% |
| Daily | 7.250% |
| Continuously | 7.251% |
The gap between annual and monthly is worth having. The gap between monthly and daily is
0.021 percentage points — rounding. Compare accounts on
APY, which already folds the frequency in, rather than on the nominal rate.Inflation Is the Number That Matters
A 7% nominal return against 3% inflation is a 4.0% real return.
Real return is what buys anything:
`
real ≈ nominal − inflation
``
Over 10 years, 3% inflation cuts purchasing power by about 26%. A projection quoted in nominal dollars therefore overstates what the money will actually be worth, which is why retirement targets are usually stated in today's dollars.