Loans & Credit

What Is Simple Interest?

Simple interest is interest calculated only on the original principal, never on interest already earned or charged. The formula is interest = principal × annual rate × time in years (I = P × r × t). It is common for short-term loans, some auto loans, and certain bonds.

Simple Interest Formula

I = P × r × t, where P is the principal, r is the annual rate as a decimal, and t is the time in years. The total amount at the end is P + I.

Example

10,000 at 6% for 3 years earns 10,000 × 0.06 × 3 = 1,800 in simple interest, for a total of 11,800.

Simple vs. Compound Interest

With compound interest, interest is added to the balance and then earns interest itself, so the total grows faster over time. For the same rate and period, compound interest always produces a result equal to or higher than simple interest.

🧮 Calculate It Yourself

Put Simple Interest into practice with these free calculators — no sign-up, nothing stored.

💹 Simple Interest Calculator Interest and total amount for any principal, rate, and time — any currency. Calculate → 📈 Compound Interest Calculator See how your money grows with compound interest and regular monthly contributions. Calculate → ⏳ Late Payment Interest Calculator See exactly how much late fee to charge an overdue invoice. Calculate →

🔗 Related Terms

Compound Interest Interest Rate Principal Flat Interest Rate

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Last updated: September 27, 2026. This definition is for general educational purposes only. It is not financial, investment, tax, legal, or medical advice, and it does not recommend any product or course of action. For decisions about your own situation, consult a qualified professional.