Use the simple interest calculator below to quickly calculate simple interest on a principal amount. The simple interest formula implemented in this simple interest loan calculator is used to calculate accrued interest on a loan or savings account that is computed with the simple interest model.
On This Page:
- Simple Interest Formula
- Simple Interest Example Calculations
- Simple Interest Definition
Simple Interest Formula
The simple interest formula is actually quite simple (pun intended).
I = P(r)(t) where
I = the simple interest accrued
P = the principal amount (amount of the loan or account value)
r = the interest
t = time period of the loan
It is important to note that the rate and time period should equal eachother – meaning if my rate is a yearly rate, the time should also be represented in years.
Simple Interest Example Calculations
A quick example of simple interest would look like the following scenario: I have $5000 in a savings account with a fixed interest rate of 10% – what is the value of the accrued interest after five years. With the simple interest formula, we would have $5000 x .10 x 5 = $2500
This means that according to simple interest, my account value would be $7500 after 5 years.
Definition of Simple Interest
Simple interest is a simplistic, non-compounding method of calculating the interest charge on a loan. Simple interest is determined by multiplying the interest rate by the principal by the number of periods.