This calculator works simple interest in all four directions — give it any three of principal, rate, time and interest and it returns the fourth. Alongside the answer it shows total repayment, the interest accruing per year and per day, a year-by-year table, and what the same arrangement would have cost or earned under annual compounding, so you can see exactly how much the compounding assumption is worth. For instalment loans where the balance falls each month, use the loan calculator instead; for long-term growth on savings, see the compound interest calculator.
Simple Interest Calculator
Simple interest solved in any direction — plus what the same deal would cost if it compounded.
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If it compounded instead
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The simple interest formula
Simple interest is calculated only on the original principal, never on interest already earned. The formula is I = P × r × t, where P is the principal, r is the annual rate as a decimal, and t is the time in years. Lend £10,000 at 5% for three years and you earn 10,000 × 0.05 × 3 = £1,500, making the total repayment £11,500. Each year contributes exactly £500 — the amount never changes, because the calculation always returns to the original £10,000.
Rearranging to find the other values
Because it is a single multiplication, the formula rearranges cleanly. To find the principal: P = I ÷ (r × t). To find the rate: r = I ÷ (P × t). To find the time: t = I ÷ (P × r). This calculator does all four directions, which is useful when you know the total cost of a loan and want to reverse-engineer the effective rate you were charged.
Simple versus compound interest
Compound interest pays interest on interest, so the balance grows on itself. Over one year at the same rate the two are identical. Beyond that they diverge, slowly at first and then dramatically — over 30 years at 7%, £10,000 earns £21,000 in simple interest but £66,000 compounded. The comparison above shows the gap for your own figures.
Which one you want depends on which side of the transaction you are on. As a saver or investor, compound is what you want. As a borrower, simple interest is cheaper — which is why it matters that most consumer debt, especially credit cards, compounds.
Where simple interest is actually used
It is more common than people assume. Most car loans and personal instalment loans in the US and UK use simple interest, calculated daily on the outstanding balance — which is why paying early genuinely saves you money on those, unlike some fixed-charge products. Short-term bridging finance, many bonds' coupon payments, and most informal loans between people also use it. Certificates of deposit and savings accounts, by contrast, almost always compound.
Day-count conventions
When the term is measured in days, the answer depends on whether a year counts as 365 days (actual) or 360 (the "ordinary interest" convention still used in some commercial and money-market contracts). The 360-day convention produces slightly more interest for the lender. This calculator uses 365. On a short loan the difference is small; on a large principal it is not, so check which basis your agreement specifies.
A caution about quoted rates
An advertised "flat rate" on a loan is simple interest on the original amount, and it is not comparable to an APR. If you borrow £10,000 at a 5% flat rate over three years but repay in monthly instalments, your average outstanding balance is roughly half the original — so the true APR is close to double the flat rate. Always compare APR to APR. Our loan calculator handles amortising repayments properly, and the compound interest calculator covers the growth side.
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Frequently asked questions
What is the simple interest formula?
I = P × r × t — principal times annual rate (as a decimal) times time in years. For £5,000 at 4% for 2 years: 5000 × 0.04 × 2 = £400 interest, £5,400 repaid in total.
What is the difference between simple and compound interest?
Simple interest is always calculated on the original principal, so the amount earned each period never changes. Compound interest is calculated on principal plus accumulated interest, so it accelerates. They are identical over one year and diverge sharply after that.
How do I find the interest rate from the interest paid?
Rearrange to r = I ÷ (P × t). If £600 of interest was charged on £4,000 over 3 years, the rate is 600 ÷ (4000 × 3) = 0.05, or 5%. Switch this calculator to 'Interest rate' mode and it does it for you.
Do car loans use simple interest?
Most do — interest accrues daily on the outstanding balance rather than being fixed upfront. That means extra payments reduce the principal immediately and genuinely cut your total interest. Check your agreement for a prepayment penalty, which some lenders use to claw that back.
Is a flat rate the same as an APR?
No, and confusing them is expensive. A flat rate charges interest on the full original amount for the whole term, even though instalment repayments shrink your balance. For a typical instalment loan the APR works out to roughly double the flat rate. Always compare APR against APR.
How is simple interest calculated for months or days?
Convert the term to a fraction of a year: 6 months is 0.5 years, 90 days is 90 ÷ 365. So £2,000 at 6% for 90 days is 2000 × 0.06 × (90/365) = £29.59. Some commercial contracts use a 360-day year instead, which yields slightly more interest.