How it works
This calculator applies one of finance's most transparent charging methods: interest that accrues linearly against the original amount you borrowed or lent. You provide three values — the principal, the annual rate as a percentage, and the time in years — and the tool returns the interest charge plus the total repayment amount. There is no schedule of compounding periods to configure and no reinvestment of accrued interest back into the balance. The result is a straight-line cost that stays predictable from day one through the final payment.
That linear behavior is what makes simple interest distinct. Each day or month adds the same incremental charge because the base never grows. Borrowers know exactly what they will owe, and lenders can quote a fixed total without modeling future compounding.
The formula
I = P × r × t
P — Principal, the starting amount borrowed or invested.
r — Annual interest rate expressed as a decimal (5% becomes 0.05).
t — Time in years; for partial years, use a fraction (90 days = 90 / 365).
The total amount to repay is then Total = P + I.
Worked example
A $2,000 short-term loan over 90 days at an annual rate of 8%.
Step 1 — Convert the rate.
8% becomes 0.08.
Step 2 — Convert the time period.
90 days is not a full year, so divide: 90 / 365 ≈ 0.246575 years.
Step 3 — Apply the formula.
I = 2000 × 0.08 × 0.246575
I = 160 × 0.246575
I ≈ $39.45
Step 4 — Add interest to the principal for the total.
Total = 2000 + 39.45 = $2,039.45
The borrower owes $39.45 in interest, for a total repayment of $2,039.45.
No compounding ever applies here. Because the rate is charged only against the original $2,000, the interest stays fixed at $39.45 regardless of how you slice the 90 days. Contrast this directly with compound interest: if the same loan compounded monthly, each month's accrued interest would be added to the principal before the next month's charge is calculated. That growing base would produce a slightly higher total — roughly $39.72 — because interest earns interest. Over 90 days the gap is small, but over multi-year terms the difference becomes substantial.
| Method | Formula | Interest on $2,000 at 8% for 90 days |
|---|---|---|
| Simple interest | P × r × t | $39.45 |
| Monthly compound | P × (1 + r/12)^(12t) − P | ≈ $39.72 |
Tips
- Always convert partial years correctly. A 6-month term is 0.5 years, a 3-month term is 0.25, and 90 days is 90/365. Using 90 as the time value directly would produce a result 365 times too large.
- Check whether your rate is annual. The formula assumes the rate you enter is per year. If a quote is given as a monthly rate, multiply by 12 before entering it, or convert the time to months and adjust the formula accordingly.
- Use this for short-term scenarios. Simple interest is most accurate for short-term loans, auto financing, and installment plans. Long-term deposits and credit cards typically compound, so results here would not match real statements.
- This calculator provides an estimate, not professional financial advice. Confirm actual loan terms, day-count conventions, and fees with your lender before signing any agreement.