Simple Interest Loan Calculator
Simple interest is calculated only on the original principal, not on accumulated interest. The formula is I = P * r * t, where P is the principal, r is the annual interest rate as a decimal, and t is the time in years. This is the basis of many short-term business loans, auto loans, and bridge loans. Enter your principal, annual rate, and term (in months or days) to calculate total interest and daily accrual.
Simple interest formula
I = P * r * t, where t = days / 365. Daily interest = P * r / 365. Total repayment = P + I.
The rate r is entered as a percentage and converted to decimal (divide by 100). The time t is the number of days divided by 365 (actual/365 day count convention, common in US consumer lending).
Simple interest vs compound interest
On a $10,000 loan at 8% APR, simple interest for 1 year gives I = $800.00. Compound interest (monthly) gives $830.00. For short-term loans, the difference is small and may be irrelevant. For multi-year loans, compound interest becomes significantly more expensive. Most US amortizing consumer loans use compound interest on the declining balance, not true simple interest on the original principal. Check your loan agreement to confirm which method applies.
Frequently asked questions
What is simple interest?
Simple interest is calculated on the original principal only, not on accumulated interest. The formula is I = P * r * t, where P is the principal, r is the annual rate as a decimal, and t is the time in years. Most US auto loans and some personal loans use simple daily interest.
How does simple interest differ from compound interest?
Compound interest accrues on both principal and accumulated interest. Simple interest accrues only on the principal. For short terms, the difference is small. For long terms, compound interest results in significantly more interest paid.
What is a simple-interest auto loan?
A simple-interest auto loan accrues interest daily based on the outstanding principal balance. Each payment first covers accrued interest, then reduces principal. If you pay early, you save interest; if you pay late, more of your payment goes to interest. This is different from a pre-computed interest loan.
Do personal loans use simple interest?
Many US personal loans use simple interest (also called actuarial interest) where interest accrues on the declining balance. The amortization schedule shows the split between interest and principal for each payment. The formula for the monthly payment is still M = P*r*(1+r)^n / ((1+r)^n - 1), but the underlying structure is simple interest on the declining balance.
How is I = P*r*t used in short-term lending?
For short-term loans where t is expressed in days or months (e.g., a 90-day business loan at 8% APR on $50,000), simple interest = 50,000 * 0.08 * (90/365) = $986.30. This exact formula is used for commercial paper, Treasury bills, and short-term bridge loans.
Official sources
- Federal Reserve Consumer Credit G.19: Consumer Credit Release.
- CFPB: Personal Loans.
Reviewed by the CalculatorHub team, edited by James Graham, 15 June 2026. See our methodology.