What is the simple interest formula?

I = P × r × t — principal times the annual rate times the number of years. Unlike compound interest, it never earns interest on interest already accrued; the interest for every period is calculated on the same original principal.

What kinds of loans use simple interest?

Many personal loans, some auto loans, and short-term promissory notes charge simple interest on the original principal, particularly when the balance doesn't compound between payments. It's also how simple savings bonds and some short-term notes are described.

How much less is simple interest than compound interest?

The gap grows with both the rate and the term — at low rates or short terms it's small, but over decades compound interest can noticeably outpace simple interest on the same principal and rate. This calculator runs both side by side on your own numbers so the difference is a dollar figure, not an abstraction.

Calculator

Simple Interest Calculator

Simple interest is charged on the original principal for the whole term, never on interest already earned, which is what most personal loans, bonds, and some promissory notes actually use. This works out the flat interest and total, then runs the identical principal, rate, and term through compound interest for comparison, so the dollar value of compounding is visible rather than assumed.

Results

Total amount

$0.00

Simple interest earned

$0.00

Compound equivalent

$0.00

same principal, rate & term

What compounding would add

$0.00

Principal, rate & time

Principal

Annual interest rate

Time, in years

Simple vs. compound

Simple interest is charged on the original principal for the whole term — never on interest already earned. That's what most personal loans, bonds, and promissory notes actually use.

The comparison below runs the identical principal, rate, and term through annual compound interest, so the dollar value of compounding — interest earning interest — is visible rather than assumed.

How this is calculated

For educational purposes only. Results are estimates and do not constitute financial, tax, or legal advice. Consult a qualified professional before making any financial decisions.

How to use it

Enter a principal, an annual interest rate, and a time in years — decimals like 2.5 are fine for a partial year.

The results show the flat interest earned and total amount, plus what the same principal, rate, and term would have earned under annual compound interest — so the dollar value of compounding is visible, not assumed.

Assumptions

Uses I = P × r × t — interest is calculated on the original principal only, for the whole term, never on interest already earned.
The compound-interest comparison uses the identical principal, rate, and years, compounded once a year, purely to size the gap.
No fees, taxes, or additional deposits are modeled.

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