How to calculate simple interest
- Enter the principal. The amount borrowed or deposited.
- Enter the annual rate as a percentage.
- Set the term in years; use decimals for part-years such as 0.5.
- Read the total interest and the total repayable.
- Compare against the compound figure shown at the bottom of the breakdown.
What this calculator shows
- Total interest over the whole term, using the standard P × R × T formula.
- The total repayable and the equal monthly instalment.
- Interest accruing per year, which makes the flat structure obvious.
- A direct comparison with the same rate compounded annually.
- Fractional terms for periods shorter than a year.
- Calculation in your browser with nothing transmitted.
The formula, and what it leaves out
Simple interest is principal multiplied by rate multiplied by time. £5,000 at six per cent for three years is £5,000 × 0.06 × 3, which is £900. The interest is the same every year because it is always calculated on the original £5,000, never on the growing balance.
That single characteristic is what separates it from compound interest, and it makes simple interest cheaper for a borrower and worse for a saver. Over the same three years, six per cent compounded annually would produce £955 rather than £900, a modest gap that widens sharply over longer terms.
Where simple interest actually applies
- Short-term personal and payday loans, where the fee is fixed at the outset.
- Some car finance and hire purchase agreements.
- Bonds paying a fixed coupon, where the coupon does not automatically reinvest.
- Statutory interest on late commercial payments in many jurisdictions.
- Informal loans between individuals, where flat interest is simply easier to agree.
Most consumer borrowing is not simple interest. Credit cards, overdrafts and mortgages all compound, usually monthly or daily. If a lender describes a product as simple interest, it is worth confirming that in the agreement rather than assuming.
Watch for the flat-rate trap
Some loans quote a flat rate calculated on the original principal for the whole term, even though you are repaying the balance down each month. That sounds like simple interest and behaves much worse.
The problem is that you pay interest on money you no longer owe. A three-year loan at a six per cent flat rate has an effective APR closer to eleven per cent, because on average you only have half the principal outstanding. If a lender quotes a flat rate, ask for the APR. Most jurisdictions require it to be disclosed, and it is the only figure that compares fairly between products.
Total repayable is the number that matters
Interest rates are a poor way to compare loans because they interact with term length. A lower rate over a longer term frequently costs more in total than a higher rate repaid quickly.
The total repayable figure cuts through that. Comparing two offers on total cost rather than headline rate is almost always the more honest comparison, particularly when the terms differ. Doubling the term at the same simple rate exactly doubles the interest, which the arithmetic here makes plain.
For savings, look at compounding
If you are depositing rather than borrowing, simple interest is the less favourable structure and it is worth knowing whether an account compounds. The compound interest calculator projects the same rate with interest reinvesting, and the difference over ten or twenty years is substantial. Everything here is calculated locally with nothing sent anywhere.