# Simple Interest Calculator

**What is simple interest?**

Simple interest is a form of interest frequently used in commercial loans, such as personal loans, car purchases or other forms of long term lending or borrowing. A simple interest calculation will take the original sum involved (called the ‘principal’, here noted as p) and will calculate interest on that amount of money over any period of time specified.

This will be done without the effect of compounding. It contrasts with compound interest, where interest accumulates and feeds back into ongoing calculations. In compound interest you pay interest on already accumulated interest. In simple interest loans you do not do this.

This makes simple interest loans better for borrowers, but less good for savers, and potentially less good for lenders too.

**How to calculate simple interest**

To calculate simple interest you need a simple formula!

Let’s say you have a lump sum or a loan amount. To calculate simple interest on it, put into your Simple Interest Calculator that principal number and multiply it by the interest rate period (as a decimal) and then multiply that by however long you wish to calculate for.

**Your formula is therefore **

P*r*t\\(Principal ~number*rate*time)

Here’s an example:

If you were calculating simple interest on $2000 in your bank account at a 4% annual interest rate for 2 years, your calculation would be this:

2000*0.04 * 2 = 160

So at the end of the 2 years you would have $2160.

Similarly, let’s say you’re lending a friend $1500 at 5% per year and they are to pay you back in 3 years, the formula would be:

1500 * 0.05 * 3 = 225.

So overall your friend would pay you back $1725 at the end of the 3 years.

And again, let’s say you borrowed $5000 at 7% over 2 years from your boss, your calculator would be:

5000 * 0.07 * 2 = 700.

So you would pay your boss back $5700 at the end of the 2 years.

It’s important to be aware that these calculations operate with the time-units for both the interest rate (annual/years) and the length of the loan (months/years) being the same kind of time-unit. This is important for the workings of these calculations.

Remember, this is for** simple interest **calculations, not compound interest calculations. That requires a different approach and you need to check out our **Compound Interest Calculator **for those calculations. Compound Interest calculations take into account interest generated within the overall time period, so your end number will be larger than with simple interest calculations.

**Simple Interest Total Amount Formula**

If you want a formula for calculating the figure that gives you the sum total at the end of a loan or interest period, here it is.

A = P~(1 =rt)

A = your ~interest ~and ~principal \\~figure ~after ~the ~end \\~of ~the ~period ~concerned, \\~i.e. ~the ~future ~value

P = principal

r = interest ~rate

t = time ~period

Here is an example calculation.

You lend a friend $10000 at a yearly interest rate of 8% over 4 years. Here’s the calculator for knowing what they have to pay you back overall after the 4 years.

Formula: A = P(1 +rt)

P = \$10000\\ r = 8\%, i.e. 8/100 = 0.08 (decimal)\\ t = 4

Put in these figures to the Simple Interest Calculator and you get the following:

10000(1 + (0.08 * 4)) \\= 10000(1 + (0.32)) \\= 10000 * 1.32 = 13200.

Your friend would therefore have to pay you back $13200 after the 4 years. The interest would therefore be $3200, which works out at $800 per annum.

Here you can see how the interest looks when tabulated for each year.

Year | Principal | Total Interest | Total |
---|---|---|---|

1 | $10,000 | $800 | $10800 |

2 | $10,000 | $1600 | $11600 |

3 | $10,000 | $2400 | $12400 |

4 | $10,000 | $3200 | $13200 |

**Simple Interest Formulas: Useful Variations**

When you are using the Simple Interest Calculator, for the purposes of these calculations, the letters mean the following.

Symbol | Definition |
---|---|

A | Future value of the investment/loan |

I | Total interest |

P | Principal amount |

r | Interest rate (decimal) |

R | Interest rate (percentage) |

t | time periods |

Try out a variety of sums and see what you find.

To calculate principal+interest (A) use:

A = P(1 + rt)

To calculate Interest only (I) use:

I = P * r * t

To calculate principal (P) based on future value use:

P = A / (1 + rt)

To calculate interest rate as a percentage use:

R = (1/t)(A/P - 1) * 100

To calculate how long it takes to reach a target figure (time factor) use:

t = (1/r)(A/P - 1)

Using the simple interest calculator is easy. To get started, enter your starting balance or amount, along with the annual interest rate and the starting date. Then enter your time period. Clicking the calculate button will then show you the interest you have earned (or must pay), as well as the final value (the principal amount plus accrued or owed interest). It will also enable you to see a monthly breakdown of interest.