Amortizing vs Simple Interest Calculator
This calculator compares two ways of charging interest on the same loan: amortizing interest, where you make level monthly payments that steadily reduce the balance, and simple interest, where interest is charged on the full original principal for the whole term. The difference matters because amortizing interest is lower: as you repay principal, less interest accrues, whereas simple interest on the full principal ignores the falling balance. This calculator takes a loan amount, an annual rate and a term, then computes the amortizing monthly payment and its total interest, and separately the simple interest on the original principal over the same period. Enter a 10,000 dollar loan at 8 percent over 3 years and the tool returns about 1,281.09 dollars of amortizing interest against 2,400.00 dollars of simple interest. The gap shows how much repaying principal along the way saves compared with a flat charge on the starting balance, which is why amortizing loans are standard for mortgages and most consumer credit. Because both methods follow fixed formulas, every figure is computed deterministically. The complete formulas and a worked example that reconciles exactly to the calculator above appear in full below for you to follow step by step.
Amortizing interest falls as you repay principal; simple interest charges the full principal throughout. A $10,000 loan at 8% over 3 years costs $1,281.09 amortizing interest versus $2,400.00 simple interest.
Amortizing and simple interest formulas
amortizing payment = L x r / (1 - (1 + r)^-n), r = annual rate / 12, n = years x 12
amortizing interest = (payment x n) - L
simple interest = L x annual rate x years
The amortizing total interest is the sum of all level payments minus the principal. Simple interest is the principal times the annual rate times the number of years, charged on the full balance throughout.
Worked example
A 10,000 dollar loan at an 8 percent annual rate over 3 years.
- Amortizing payment = 10,000 x 0.0066667 / (1 - 1.0066667^-36) = 313.36 dollars
- Amortizing interest = (313.36 x 36) - 10,000 = 11,281.09 - 10,000 = 1,281.09 dollars
- Simple interest = 10,000 x 0.08 x 3 = 2,400.00 dollars
- Interest saved by amortizing = 2,400.00 - 1,281.09 = 1,118.91 dollars
These are the calculator's default inputs, so the result above matches the widget exactly.
Amortizing vs Simple Interest Calculator: frequently asked questions
What is the difference between amortizing and simple interest?
Amortizing interest is charged on a balance that falls as you repay principal, so the total interest is lower. Simple interest here is charged on the full original principal for the whole term, ignoring repayment, so it is higher.
Why is amortizing interest lower?
Because each payment reduces the principal, less interest accrues in later months. Simple interest on the original principal does not give credit for that paydown, so it overstates the cost of a loan you repay over time.
When is simple interest used?
Some short-term and specialty loans quote simple interest on the principal. Comparing it against the amortizing figure shows how much the method itself, not just the rate, affects what you pay.
Does a higher rate widen the gap?
Yes. A higher rate or a longer term increases both totals, but the gap between simple interest and amortizing interest grows too, because more interest is charged on principal that an amortizing loan would have repaid.
Which method should I prefer as a borrower?
All else equal, an amortizing loan costs less in total interest for the same rate and term. The US Securities and Exchange Commission's Investor.gov encourages comparing the full cost of borrowing, which this tool makes explicit.
Official sources
- Loans, interest and borrowing basics: US Securities and Exchange Commission, Investor.gov. As at 25 June 2026.
Reviewed by the CalculatorHub team, edited by James Graham, 25 June 2026. See our methodology. This is general information, not financial, tax, legal or investment advice.