Simple Interest Calculator
The Simple Interest Calculator helps you calculate interest earned or owed on a principal amount over a specific time period. Unlike compound interest, simple interest is calculated only on the principal amount, making it easier to understand and calculate manually.
Simple Interest Formula
Simple Interest = Principal × Rate × Time (I = P × R × T)
Total Amount = Principal + Simple Interest (A = P + I)
Key Simple Interest Terms
- Principal (P): The initial amount of money borrowed or invested.
- Interest Rate (R): The percentage charged as interest per year.
- Time (T): The duration for which money is borrowed or invested.
- Simple Interest (I): The interest calculated on the principal amount only.
- Total Amount (A): The sum of principal and simple interest.
When is Simple Interest Used?
- Short-term loans and advances
- Car loans and personal loans
- Some government bonds and treasury bills
- Simple savings accounts
- Quick interest calculations
Simple vs Compound Interest
Simple interest is calculated only on the principal amount, while compound interest is calculated on both the principal and previously earned interest. This makes simple interest linear growth, whereas compound interest creates exponential growth over time.
Tips for Simple Interest Calculations
- Always convert the interest rate to decimal form (divide by 100)
- Ensure time period matches the rate period (annual rate with years)
- Double-check your calculations with the reverse formula
- Consider inflation when evaluating real returns
- Compare with compound interest options for long-term investments