What is the formula for simple interest?

The formula for simple interest is I = P * R * T, where 'I' is the interest, 'P' is the principal amount, 'R' is the annual interest rate in decimal form, and 'T' is the time period in years.

What is the main difference between simple and compound interest?

Simple interest is calculated only on the original principal amount. In contrast, compound interest is calculated on the principal amount and also on the accumulated interest from previous periods. This 'interest on interest' effect makes compound interest grow much faster over time.

Can I calculate for months or days?

Yes, our calculator allows you to enter the time period in years, months, and days for a more precise calculation. It automatically converts the total duration into years for the formula (T = years + months/12 + days/365).

How do you calculate simple interest for 6 months?

To calculate simple interest for 6 months, you use the standard formula I = P * R * T, but you set T to 0.5 (since 6 months is half a year). For example, a $1,000 loan at 5% annual interest for 6 months would be $1,000 * 0.05 * 0.5 = $25.

Simple Interest Calculator

A free online tool to solve for any variable in the simple interest formula (I=PRT).

Principal Amount (P)

Annual Interest Rate (R)

Time Period (T)

Simple Interest

$0.00

Principal Amount

$0.00

Total Amount

$0.00

Principal vs. Interest Breakdown

The Ultimate Guide to Simple Interest

Simple interest is the most basic way to calculate the cost of borrowing money or the earnings from an investment. Unlike compound interest, it is calculated exclusively on the original principal amount. This makes the calculation straightforward and easy to understand. The core of this calculation lies in the simple interest formula: I = P × R × T.

The Simple Interest Formula Explained

To master your financial calculations, it's essential to understand each component of the formula:

I (Interest): The total amount of interest paid or earned, in currency.
P (Principal): The initial sum of money that was borrowed or invested.
R (Rate): The annual interest rate. This must be converted to a decimal for calculation (e.g., 5% becomes 0.05).
T (Time): The duration of the loan or investment, expressed in years.

This calculator removes the manual work, allowing you to find any missing variable instantly. Whether you're a student learning financial concepts, a borrower estimating loan payments, or an investor projecting returns, this tool is designed for you.

How to Use Our Simple Interest Calculator

Calculating simple interest has never been easier. Just follow these simple steps:

Input Principal: Enter the starting amount in the 'Principal Amount (P)' field.
Input Rate: Add the annual interest rate (as a percentage) into the 'Annual Interest Rate (R)' field.
Input Time: Specify the time period using the years, months, and days fields. The tool will automatically convert this into the total time in years for the calculation.
Get Your Results: Click 'Calculate' to see the simple interest, principal, and total amount, complete with a visual chart.

Practical Example: Calculating Car Loan Interest

Let's say you take out a car loan for $15,000 (P) at an annual interest rate of 7.5% (R) for a period of 4 years (T).

Using the formula:

I = $15,000 × 0.075 × 4

The total simple interest you would pay over the four years is $4,500 (I). The total amount you would repay is the principal plus the interest: $15,000 + $4,500 = $19,500.

Simple Interest vs. Compound Interest

The primary difference is how the interest is calculated. Simple interest is always based on the original principal. Compound interest, however, is calculated on the principal and on the accumulated interest from previous periods. This "interest on interest" effect means that compound interest grows at a much faster rate, making it ideal for investments but more costly for loans.

Use Simple Interest for: Short-term personal loans, car loans, and retail installment contracts.
Use Compound Interest for: Savings accounts, retirement funds, and long-term investments.

For more complex loan scenarios that involve compound interest, our Amortization Calculator provides a detailed payment schedule.