Principal, rate and time
Simple interest is the easiest kind to understand: the same amount of interest is earned for every period, because it is always charged on the original principal. The tool multiplies principal, yearly rate and time in years, then divides by 100. It also shows the interest for each year and the total amount.
Where it is used
- Short personal loans and some fixed deposits.
- Checking an advertised offer, such as "8% for 18 months".
- School and exam questions.
For loans repaid in monthly instalments use the EMI calculator, and to see growth with interest on interest use the compound interest calculator.
Frequently asked questions
What is the simple interest formula?
Interest = Principal × Rate × Time ÷ 100, with the rate as a yearly percentage and the time in years. 100,000 at 8% for 3 years gives 100,000 × 8 × 3 ÷ 100 = 24,000.
How do I use months or days?
Convert them to years first: months ÷ 12 or days ÷ 365. The calculator does this when you pick months or days.
What is the difference between simple and compound interest?
Simple interest is always worked out on the original amount. Compound interest is worked out on the growing balance, so it earns more over long periods.
How do I find the rate or the time?
Rearrange the formula: Rate = Interest × 100 ÷ (Principal × Time), and Time = Interest × 100 ÷ (Principal × Rate).
Does this work for a bank loan?
Many bank loans use a reducing balance, so interest falls as you repay. For monthly instalments use the EMI calculator.