About the Simple Interest
Simple interest is interest charged or earned only on the original principal, for the time the money is lent or deposited. It does not add interest on interest. This simple interest calculator works out the interest and the total amount for any principal, rate and period, and lets you enter the period in years, months or days.
It is used by students and teachers checking textbook problems, by traders and small businesses settling interest on delayed payments or short-term advances, and by individuals lending or borrowing informally among family and friends. It is also a quick way to check the interest clause in an agreement or invoice, where a rate per annum is applied to an overdue amount for a number of days.
The result depends on three things only: the principal, the annual rate and the time. Because the interest does not compound, it grows in a straight line, and doubling the period exactly doubles the interest. Most bank loans and deposits do not work this way. Loans use a reducing balance and deposits usually compound, so use the EMI or compound interest calculator for those.
How to use it
- 1Enter the principal amount.
- 2Enter the annual rate of interest.
- 3Enter the time period and choose whether it is in years, months or days.
- 4Read the simple interest, the total amount and the interest per year.
How this is calculated
SI = (P × R × T) ÷ 100 P = principal, R = annual rate of interest in per cent, T = time in years (months ÷ 12, or days ÷ 365, when you choose those units). Total amount = P + SI.
Frequently asked questions
What is the formula for simple interest?
Simple interest equals the principal multiplied by the annual rate and by the time in years, divided by 100. For a period in months, divide the months by 12, and for days, divide by 365. The total amount payable or receivable is the principal plus the interest.
How do I calculate simple interest for days or months?
Convert the period into years. For months, divide by 12, so nine months becomes 0.75 of a year. For days, divide by 365, so 90 days becomes about 0.2466 of a year. The calculator does this for you when you choose months or days in the unit field.
What is the difference between simple and compound interest?
Simple interest is calculated on the original principal only, so the interest is the same every year. Compound interest is calculated on the principal plus the interest already earned, so it grows faster over time. For short periods the difference is small, but over many years compounding produces a much larger amount.
Where is simple interest used in practice?
It is commonly used for short-term loans between individuals, interest on delayed payments under contracts and invoices, some very short-term deposits, and loans quoted at a flat rate. Interest on late payment of certain taxes and statutory dues is also calculated on a simple basis, at the rate prescribed by the relevant law.
Is a flat interest rate the same as simple interest?
In effect, yes. A flat-rate loan charges simple interest on the full original amount for the whole tenure, even though you repay principal every month. The true cost is therefore much higher than the quoted flat rate, often not far from double. Compare loans using the reducing-balance rate or the annual percentage rate.