David is a Chartered Financial Analyst with over 15 years of experience in corporate finance and personal financial planning, specializing in loan instruments and interest calculations.
This 4-in-1 Simple Interest calculator helps you find the missing variable for any basic loan. Enter any three values—Principal Amount, Annual Rate, Term, or Total Interest—and we will solve for the fourth.
Simple Interest Calculator
Simple Interest Formula
I = P * (R / 100) * T
Solve for Principal (P):
P = I / ((R / 100) * T)
Solve for Rate (R):
R = (I / (P * T)) * 100
Solve for Term (T):
T = I / (P * (R / 100))
Formula Variables
- (I) Total Interest: The total amount of money paid in interest over the life of the loan.
- (P) Principal Amount: The initial amount of money borrowed or invested.
- (R) Annual Rate: The interest rate charged per year, expressed as a percentage.
- (T) Term: The duration of the loan, expressed in years.
Related Calculators
- Compound Interest Calculator
- Personal Loan Payment Calculator
- Loan APR Calculator
- Daily Interest Calculator for Loans
What is Simple Interest?
Simple interest is a straightforward method for calculating the interest charge on a loan or investment. It is calculated only on the original principal amount (the amount borrowed or invested) and does not include interest on the interest. This makes it different from compound interest, which calculates interest on both the principal and the accumulated interest from previous periods.
This calculation method is most common for short-term loans, such as auto loans or personal loans, where the repayment schedule is clear and fixed. For example, if you borrow $10,000 at a 5% simple annual interest rate for 3 years, you will pay $500 in interest each year ($10,000 * 0.05). Over the 3-year term, your total interest paid would be $1,500 ($500 * 3).
How to Calculate Simple Interest (Example)
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Identify the Variables
Let’s say you want to take out a personal loan. The terms are:
• Principal (P): $20,000
• Annual Rate (R): 7%
• Term (T): 4 years
We need to find the Total Interest (I). -
Choose the Correct Formula
To find the Total Interest, we use the formula:
I = P * (R / 100) * T -
Convert the Rate
First, convert the annual percentage rate (R) from a percentage to a decimal:
R = 7% / 100 = 0.07 -
Calculate the Interest
Now, plug the values into the formula:
I = $20,000 * 0.07 * 4
I = $1,400 * 4
I = $5,600
The total simple interest paid over 4 years will be $5,600.
Frequently Asked Questions (FAQ)
What is the difference between simple and compound interest?
Simple interest is calculated only on the original principal amount. Compound interest is calculated on the principal *plus* any interest that has already accumulated. This “interest on interest” effect means compound interest grows much faster over time.
How do I calculate simple interest for a period less than a year?
The ‘Term (T)’ variable must be expressed in years. If your loan is for 6 months, you would use T = 0.5. If it’s for 3 months, T = 0.25. If it’s for 30 days, you might use T = 30 / 365.
Is simple interest good or bad for a borrower?
For a borrower, simple interest is generally better than compound interest because the interest charge is predictable and does not grow exponentially. You only pay interest on the amount you originally borrowed. Most savings accounts, on the other hand, use compound interest, which is good for the investor.
What is the ‘total repayment’ amount?
The total repayment amount is the sum of the original principal and the total interest paid. Using the example above:
Total Repayment = Principal (P) + Total Interest (I)
Total Repayment = $20,000 + $5,600 = $25,600