Simple Interest Calculator

Simple interest is commonly used for short-term loans such as auto loans, some personal loans, and certain mortgage products. It is also the basis for US Treasury bills and notes, as well as many bridging loans and payday lending products. For long-term savings accounts and mortgages, compound interest is the norm.

The formula is: Interest = Principal x Rate x Time. For example, $5,000 at 4% per year for 3 years earns $5,000 x 0.04 x 3 = $600 in interest, for a total of $5,600. The rate and time must use the same unit -- if the rate is annual, time must be in years; if the rate is monthly, time must be in months.

Annual Percentage Rate (APR) on a loan includes both the stated interest rate and most lender fees, expressed as a yearly rate. Simple interest as calculated here does not include fees. When comparing loans, always use the APR for an apples-to-apples comparison, as two loans with the same stated rate can have very different APRs once origination fees and other charges are included.

Yes, with simple interest loans, paying early reduces the outstanding principal immediately, so less interest accrues going forward. This is why making extra payments on auto loans and personal loans reduces total interest paid significantly. Check your loan agreement for any prepayment penalties before making extra payments, though these are now relatively rare on consumer loans.