Certified Public Accountant specializing in consumer credit and short-term debt analysis.
The **Simple Interest Loan Calculator** helps you quickly calculate the total interest paid on a loan where interest is calculated only on the original principal amount. This model is commonly used for short-term personal loans or specific types of car loans. Input any three variables (Principal, Annual Rate, Time in Years, or Total Interest) to solve for the missing one.
Simple Interest Loan Calculator
Simple Interest Loan Formula Variations
The core simple interest formula is linear and straightforward:
Let $P$ = Principal, $R$ = Annual Rate (decimal), $T$ = Time in Years.
Formula Source: Investopedia – Simple Interest
Solving for the four variables:
I (Total Interest) = P × R × T
P (Principal) = I ÷ (R × T)
R (Annual Rate) = I ÷ (P × T)
T (Time in Years) = I ÷ (P × R)
Variables Explained
- F (Principal – P): The initial amount of the loan or investment.
- P (Annual Rate – R): The yearly interest rate, entered as a percentage (e.g., 6.5).
- V (Time in Years – T): The duration of the loan, measured in full or partial years.
- Q (Total Interest – I): The total amount of interest charged or earned over the entire term.
Related Calculators
- Compound Interest Calculator
- Total Loan Cost Calculator
- Loan Principal Balance Calculator
- Monthly Installment Calculator
What is Simple Interest?
Simple interest is a quick and easy method of calculating interest charged on a loan or paid on a deposit. The key defining characteristic is that the interest is calculated **only on the original principal amount**. Unlike compound interest, simple interest does not factor in the interest earned or charged in previous periods.
Because interest does not compound on itself, simple interest loans typically result in a lower total interest payment for the borrower compared to a compound interest loan over the same term and rate. This model is often preferred for short-term consumer loans, calculating interest on bonds, and initial estimations of interest cost.
How to Calculate Simple Interest (Example)
Scenario: A $10,000 loan has a 6.5% Annual Simple Interest Rate over 3 years.
- Convert Rate to Decimal (R):
$$R = 6.5\% \div 100 = 0.065$$
- Apply the Simple Interest Formula:
$$I = P \times R \times T$$
- Calculate the Result:
$$I = \$10,000 \times 0.065 \times 3$$
- Final Result:
$$I = \$1,950.00$$ (The total simple interest paid over 3 years).
Frequently Asked Questions (FAQ)
Simple interest only calculates interest on the initial principal. Compound interest calculates interest on the principal *plus* any accumulated interest from previous periods. Compound interest leads to faster growth (or higher debt cost).
Are most consumer loans Simple Interest?No. Most large consumer loans, especially mortgages and car loans, use compound interest (amortizing loans). Simple interest is more common for very short-term loans, payday loans, or interest on bonds.
How is time (T) handled if the term is in days?If the term is measured in days, the formula is modified to $I = P \times R \times (\text{Days} / 365)$. This calculator uses Time in Years (T), so you should convert days (e.g., 180 days) into years (e.g., $180/365 \approx 0.493$).
What is the Total Amount Due?The total amount due at the end of the term is the Principal plus the Total Interest: $A = P + I$.