Simple Interest Calculator

What is Simple Interest?

Interest is the cost you pay to borrow money or the compensation you receive for lending money. You might pay interest on an auto loan or credit card, or receive interest on cash deposits in interest-bearing accounts, like savings accounts or certificates of deposit (CDs).

Simple interest is interest that is only calculated on the initial sum (the “principal”) borrowed or deposited. Generally, simple interest is set as a fixed percentage for the duration of a loan. No matter how often simple interest is calculated, it only applies to this original principal amount. In other words, future interest payments won’t be affected by previously accrued interest.

Simple Interest Formula

The basic simple interest formula looks like this:

Simple Interest = Principal Amount × Interest Rate × Time

Our calculator will compute any of these variables given the other inputs.

Simple Interest Calculated Using Years

You may also see the simple interest formula written as:

I = Prt

In this formula:

• I = Total simple interest
• P = Principal amount or the original balance
• r = Annual interest rate
• t = Loan term in years

Under this formula, you can manipulate “t” to calculate interest according to the actual period. For instance, if you wanted to calculate interest over six months, your “t” value would equal 0.5.

Simple Interest for Different Frequencies

You may also see the simple interest formula written as:

I = Prn

In this formula:

• I = total interest
• P = Principal amount
• r = interest rate per period
• n = number of periods

Under this formula, you can calculate simple interest taken over different frequencies, like daily or monthly. For instance, if you wanted to calculate monthly interest taken on a monthly basis, then you would input the monthly interest rate as “r” and multiply by the “n” number of periods.

Simple Interest Examples

Let’s review a quick example of both I=Prt and I=Prn.

I = Prt

For example, let’s say you take out a $10,000 loan at 5% annual simple interest to repay over five years. You want to know your total interest payment for the entire loan.

To start, you’d multiply your principal by your annual interest rate, or $10,000 × 0.05 = $500.

Then, you’d multiply this value by the number of years on the loan, or $500 × 5 = $2,500.

Now that you know your total interest, you can use this value to determine your total loan repayment required. ($10,000 + $2,500 = $12,500.) You can also divide the value to determine how much interest you’d pay daily or monthly.

I = Prn

Alternatively, you can use the simple interest formula I=Prn if you have the interest rate per month.

If you had a monthly rate of 5% and you’d like to calculate the interest for one year, your total interest would be $10,000 × 0.05 × 12 = $6,000. The total loan repayment required would be $10,000 + $6,000 = $16,000.