Simple Interest Calculator USA
Calculate simple interest on loans, investments, or savings with our easy-to-use calculator. Simple interest is calculated only on the principal amount, unlike compound interest.
About Simple Interest
Simple interest is a quick method of calculating the interest charge on a loan. Simple interest is determined by multiplying the daily interest rate by the principal by the number of days that elapse between payments.
How Simple Interest Works
Simple interest is calculated only on the principal amount of a loan or deposit. The formula for simple interest is:
Simple Interest = Principal × Rate × Time
Applications of Simple Interest
- Short-term loans (less than one year)
- Car loans
- Certificates of deposit (CDs)
- Savings accounts (in some cases)
- Consumer loans
Advantages of Simple Interest
- Easy to calculate and understand
- Lower total cost compared to compound interest over short periods
- Predictable - interest doesn't accumulate on previous interest
Simple vs Compound Interest
Unlike compound interest, where interest is calculated on both the principal and accumulated interest, simple interest is calculated only on the original principal. This makes simple interest easier to calculate and predict, but typically results in lower returns on investments compared to compound interest over longer periods.
Simple Interest Calculator FAQ
What is simple interest?
Simple interest is interest calculated only on the principal amount of a loan or deposit. It does not compound, meaning interest is not calculated on previously earned interest. The formula is: Simple Interest = Principal × Rate × Time.
How is simple interest different from compound interest?
Simple interest is calculated only on the original principal amount, while compound interest is calculated on the principal plus any previously earned interest. Over time, compound interest results in higher interest charges or earnings compared to simple interest.
When is simple interest used?
Simple interest is commonly used for short-term loans, car loans, and some consumer credit products. It's also used in some certificates of deposit and savings accounts. Long-term investments and mortgages typically use compound interest.
Is simple interest better than compound interest?
It depends on your perspective. For borrowers, simple interest is generally better as it results in lower total interest payments over time. For investors, compound interest is better as it leads to higher returns. The difference becomes more significant over longer periods.
How do I calculate simple interest manually?
Use the formula: Simple Interest = Principal × Rate × Time. For example, if you have a $5,000 loan with a 4% annual interest rate for 2 years, the calculation would be: $5,000 × 0.04 × 2 = $400 in interest.
Can simple interest be calculated for partial years?
Yes, simple interest can be calculated for any time period. If you need to calculate for months, divide the annual rate by 12. For days, divide by 365 (or 360 depending on the convention). For example, for 6 months: Interest = Principal × (Annual Rate ÷ 12) × 6.
What types of loans use simple interest?
Common examples include car loans, short-term personal loans, and some student loans. Credit cards typically use compound interest, as do most savings accounts and mortgages. Some payday loans also use simple interest calculations.
Does simple interest save money?
For borrowers, simple interest can save money compared to compound interest, especially on short-term loans. Since interest isn't charged on previously accrued interest, the total amount paid over the life of the loan is typically lower with simple interest.
How accurate is this simple interest calculator?
Our calculator uses the standard simple interest formula and provides accurate results based on the inputs provided. However, actual loan terms may include additional fees, different compounding periods, or variable rates that could affect the final amount.
Can I use this calculator for investments?
Yes, this calculator works for both loans and investments earning simple interest. Enter the initial investment amount as the principal, the expected interest rate, and the time period to calculate potential earnings.