Simple Interest Calculator
Calculate simple interest on loans or investments using the basic interest formula.
Initial amount
Annual interest rate
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Simple Interest Formula
I = P × r × t
I = Interest, P = Principal, r = Rate, t = Time
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What is Simple Interest?
Simple interest is a quick method of calculating the interest charge on a loan or the interest income on an investment. It is determined by multiplying the daily interest rate by the principal by the number of days that elapse between payments.
How it Works
The formula for simple interest is straightforward:
- I = Interest
- P = Principal amount
- r = Annual interest rate (decimal)
- t = Time period (in years)
Example Calculation
If you borrow $5,000 at an annual simple interest rate of 5% for 3 years:
Principal (P): $5,000
Rate (r): 0.05
Time (t): 3 years
Interest (I): $5,000 × 0.05 × 3 = $750
Total Amount: $5,000 + $750 = $5,750
Frequently Asked Questions
What is the difference between simple and compound interest?
Simple interest is calculated only on the principal amount. Compound interest is calculated on the principal amount plus any accumulated interest.
How do I convert monthly rate to annual rate?
Multiply the monthly interest rate by 12 to get the annual interest rate.
Is simple interest better for borrowers or lenders?
Simple interest is generally better for borrowers because they pay interest only on the principal, not on accumulated interest. It is less profitable for lenders compared to compound interest.
Can I use this for days or months?
Yes, but you must convert the time to years. For months, divide by 12 (e.g., 6 months = 0.5 years). For days, divide by 365 (e.g., 90 days = 90/365 years).