How this calculator works
Simple interest is charged only on the original principal: interest = principal × annual rate × time in years.
Months are converted by dividing by 12 and days by dividing by 365.
Simple interest is used for some short-term loans, bonds and car loans calculated on a daily basis.
Unlike compound interest, earned interest is not added to the principal, so growth is linear.
Worked example
$10,000 at 5% for 3 years
- Interest: $10,000 × 0.05 × 3 = $1,500.
- Total: $11,500.
- For 18 months: $10,000 × 0.05 × 1.5 = $750.
Questions people ask
What is the simple interest formula?
I = P × r × t, where P is the principal, r the annual rate as a decimal and t the time in years.
How is simple interest different from compound?
Simple interest is always calculated on the original amount; compound interest is calculated on the growing balance.
Do car loans use simple interest?
Many do, with interest calculated daily on the remaining balance, which is why paying early in the month can save a little interest.
How do I find the rate from the interest?
Rearrange the formula: r = I ÷ (P × t). $1,500 of interest on $10,000 over 3 years is 1,500 ÷ 30,000 = 5% a year.
Last reviewed October 2, 2026