Interest is charged only on the original principal P — never on accumulated interest — so the balance grows in a straight line. r is the annual rate (as a decimal) and t the time in years. Most short-term loans, car loans and bonds use simple interest; savings and credit cards use compound.
Simple interest, explained
Simple interest is the most straightforward way to price the cost of borrowing or the return on a deposit. It uses the formula I = P × r × t and, unlike compound interest, never charges interest on previously earned interest.
Drag the principal, rate, and time sliders and the split bar shows how much of your total repayment is the original principal versus the interest cost.
Worked example
Borrow $10,000 at 6% simple interest for 3 years: I = 10,000 × 0.06 × 3 = $1,800, for a total repayment of $11,800. Halve the time and the interest halves too — the relationship is perfectly linear, unlike compound interest where time snowballs.
Simple vs compound interest
The same $10,000 at 6% for 3 years costs $1,800 with simple interest but $1,910 compounded monthly — and the gap widens fast with time: over 20 years it's $12,000 simple vs $23,100 compounded. Rule of thumb: simple interest favors the borrower, compound favors the saver. See the difference live in the compound interest calculator.
Where simple interest shows up
Short-term personal and auto loans, bonds' coupon payments, and many private/institutional agreements price with simple interest. Months work too — use fractions of a year (t = months ÷ 12): $5,000 at 8% for 9 months is 5,000 × 0.08 × 0.75 = $300. For payment-based loans that amortize, use the loan calculator instead.
For information only; not financial advice.