Simple Interest Calculator
Interest charged or earned without compounding
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What this calculator computes
The simple-interest calculator computes the interest earned on a deposit or charged on a loan when interest is applied only to the original principal, not to previously-accumulated interest. The formula is I = P × r × t, where P is the principal, r is the annual interest rate as a decimal, and t is the time in years. Simple interest is rare in modern consumer banking — most savings accounts and credit cards use compound interest — but appears in specific contexts: short-term promotional finance offers ("0% interest for 12 months" deals), bridging loans and short-term commercial finance, US Treasury bills and other discount instruments where interest is paid as a single lump at maturity, some private peer-to-peer lending, and most car-finance and personal-loan products in the UK that quote "flat rate" interest (a marketing term for simple interest, deliberately quoted alongside the higher APR to make rates appear lower than they really are). The total cost of a loan under simple interest is straightforward: a £10,000 loan at 5% simple interest over 5 years accrues £2,500 of interest (10,000 × 0.05 × 5), giving a £12,500 total repayment. Compound interest at the same nominal rate would accrue £2,762, about 10% more, demonstrating why borrowers prefer simple-interest loans and lenders prefer compound. **Educational tool only — not financial advice. UK regulated lending must quote APR (a compound-equivalent rate) alongside any flat-rate marketing figure; always compare APR for like-for-like loan comparison. Consult a qualified financial advisor before making borrowing decisions.**
Calculator
The formula
Formula
I = P × r × t Total = P + I
Worked example
When to use this calculator
Use this calculator when an interest figure is explicitly quoted as "simple", "flat rate", or "non-compounding", and you need the total cost of the loan or deposit. Common scenarios are short-term commercial bridging loans, US Treasury bills (where the discount rate is essentially simple-interest), peer-to-peer lending platforms that quote simple-interest returns, and UK personal-loan and car-finance products that advertise a flat rate (where the calculator's output is the headline cost, but the actual APR is meaningfully higher because the borrower's average outstanding balance over the loan term is roughly half the principal). The calculator is also useful for back-checking simple-interest quotes against compound-interest equivalents to confirm a lender is not under-quoting. For most savings, mortgages, credit cards, and modern installment loans, use the compound-interest or loan-EMI calculators instead — those products do not use simple interest.
Common input mistakes
- Confusing flat rate with APR. A "5% flat rate" UK personal loan is roughly equivalent to a 9–10% APR because flat-rate interest is calculated on the original principal even after the borrower has repaid most of it, while APR reflects the actual interest cost on the declining outstanding balance. Comparing a flat-rate offer against an APR offer without converting is one of the most common consumer-finance mistakes; always compare APR to APR for fair like-for-like rate analysis.
- Applying simple-interest math to compound-interest products. Most savings accounts, credit cards, and mortgages use daily or monthly compounding, not simple interest; using the simple-interest formula to project future balance produces a low estimate, and using it to estimate credit-card debt understates the true cost of carrying a balance. Confirm the compounding convention before applying any interest formula.
Frequently asked questions
What is simple interest?
Simple interest is interest calculated only on the original principal of a loan or deposit, not on accumulated interest. A £1000 deposit at 5% simple interest earns £50 per year regardless of accumulated balance; over 10 years the total interest is £500 (1000 × 0.05 × 10), giving a £1500 total. Compound interest at the same rate would earn £628.89 over 10 years because each year's interest is added to the principal for the next year's calculation.
Where is simple interest used?
Simple interest appears in short-term commercial loans, US Treasury bills (discount-rate convention), peer-to-peer lending quoted returns, UK car-finance and personal-loan flat-rate marketing, and short promotional credit offers ("0% for 12 months" deals). It is rare in modern long-term consumer products — savings accounts, credit cards, mortgages, and standard amortising loans all use compound interest. The flat-rate quoting convention is preserved in UK consumer lending mostly because it produces a lower-looking headline number than the equivalent APR.
How does simple interest differ from APR?
APR (Annual Percentage Rate) is a regulated, compound-equivalent rate that includes all fees and charges, designed for like-for-like comparison across lenders. A flat rate (simple-interest) figure does not include fees, does not compound, and is calculated against the original principal even after partial repayment. A 5% flat rate roughly equates to 9–10% APR for a typical 4–5 year UK personal loan; the multiplier varies with loan term but is rarely below 1.5× and rarely above 2.5×.
Should I prefer simple-interest or compound-interest loans?
For loans (where you pay interest), simple interest is cheaper than compound at the same nominal rate, but most consumer loans are quoted in compound-equivalent APR terms anyway. The decision is between APR figures, not between simple and compound versions of the same nominal rate. For deposits (where you earn interest), compound interest is preferable; daily compounding is best, monthly is fine, and annual is the worst case for the saver.
How is simple interest calculated for partial years?
Replace the years figure with the fraction of a year elapsed. A 90-day loan at 5% simple interest on £10,000 accrues 10000 × 0.05 × (90/365) = £123.29 of interest. Most short-term commercial bridging loans use this convention, with the day count following either ACT/365 (calendar days over 365) or ACT/360 (calendar days over 360, the US money-market convention) depending on the contract. The two conventions produce slightly different figures for the same loan period.