Simple Interest Calculator
Simple interest is the only interest formula where the balance never feeds back into itself. It still governs a surprising amount of real money: car loans quoted as flat-rate, informal family loans, short bridging finance, and most bond coupon payments. This calculator shows the interest and the maturity value so you can see exactly how much a flat rate costs.
Inputs
Result
1,800
Maturity value 11,800
How it works
I = P × r × t
How the simple interest calculator works
Interest = P × r × t, where P is the principal, r is the annual rate as a decimal, and t is the time in years. Maturity value = P + interest.
Because the base never changes, interest accrues in a straight line. Doubling the term exactly doubles the interest — something compound interest never does.
Part-years go in as fractions: 9 months is 0.75, 18 months is 1.5. Feeding months in as whole numbers multiplies the answer twelvefold.
Worked example: 50,000 at 8% for 3 years
- Interest = 50,000 × 0.08 × 3 = 12,000.
- Maturity value = 50,000 + 12,000 = 62,000.
- Yearly interest is a flat 4,000 — identical in year one and year three.
- The same money at 8% compounded annually would earn 12,986, so compounding adds 986 over three years and far more over ten.
Common mistakes to avoid
Comparing a flat rate against a reducing-balance rate
A 'flat 8%' car loan is roughly equivalent to 14–15% reducing balance, because you keep paying interest on money you have already repaid. Never compare the two headline numbers directly.
Entering the rate as 8 instead of 0.08
The formula needs a decimal. This calculator handles the conversion, but hand calculations frequently come out 100 times too large.
Using simple interest for a savings projection
Almost every real savings account compounds. Simple interest understates long-term growth badly and should only be used where the contract genuinely fixes the interest base.
Frequently asked questions
What is the difference between simple and compound interest?
Simple interest is charged only on the original principal; compound interest is charged on principal plus accumulated interest. Over one year they match, and the gap widens every year after.
Where is simple interest actually used?
Flat-rate vehicle and consumer loans, short-term bridging finance, most bond coupons, and statutory interest on late payments or court awards.
How do I calculate simple interest for months?
Divide the months by 12 and use that as t. For 7 months at 9% on 20,000: 20,000 × 0.09 × 7/12 = 1,050.
Can I work backwards to find the rate?
Yes: r = Interest ÷ (P × t). If 20,000 earned 3,000 over two years, the rate is 3,000 ÷ 40,000 = 7.5%.
Is simple interest ever better for a borrower?
Only when the same nominal rate is offered both ways, which is rare. Lenders usually quote flat rates precisely because the effective cost is higher.
Learn more
Flat rate vs reducing balance: why an 8% car loan costs 15%
Two loans, the same headline rate, nearly double the real cost. Here is the arithmetic dealers rely on you not doing.
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