To calculate simple interest, multiply the principal by the annual interest rate (as a decimal) by the time in years: Interest = Principal × Rate × Time, or I = P × R × T. A $10,000 loan at 6% for 4 years earns $10,000 × 0.06 × 4 = $2,400 in interest, for a $12,400 total. Simple interest is charged only on the original principal and never on accumulated interest, which makes it the easiest interest math in personal finance. The fastest way to run any figure is our simple interest calculator, but the formula is short enough to do on paper.
That one line answers the question for most situations. The details that trip people up are converting the rate correctly, handling time that isn't a whole number of years, and choosing a day-count basis for short-term loans. This guide walks through the formula step by step, works real dollar examples for years, months, and days, shows how to rearrange the formula to solve for the rate or principal, and gives you a copy-paste Excel setup. Simple interest is the opposite of compound interest, so if your money is growing in a savings account instead of being borrowed, read what is compound interest and switch to the compound interest calculator instead.
The simple interest formula
Simple interest has exactly three inputs and one formula:
I = P × R × T
- P (Principal) is the original amount borrowed or invested, before any interest. It never changes during the term.
- R (Rate) is the annual interest rate written as a decimal. A 6% rate becomes 0.06; a 4.5% rate becomes 0.045. Move the decimal two places left and drop the percent sign.
- T (Time) is the term in years. Six months is 0.5; eighteen months is 1.5; 90 days is roughly 0.25.
To get the total you'll repay or receive, add the interest back to the principal: Total (A) = P + I = P × (1 + R × T). The single most important thing to remember is that R and T must use the same unit of time. Because the rate is annual, the time has to be in years. If you mix an annual rate with a term measured in months, your answer will be off by a factor of twelve.
How to calculate simple interest, step by step
Here is the reliable method that works for any loan, note, or bond coupon.
- Write down the principal (P). Use the original amount, not a running balance.
- Convert the rate to a decimal (R). Divide the percentage by 100. So 7% becomes 0.07.
- Convert the time to years (T). Whole years stay as-is; for months divide by 12; for days divide by 360 or 365 (see the day-count section below).
- Multiply all three together. P × R × T gives the interest in dollars.
- Add interest to principal for the total. P + I is the full payoff or maturity value.
Worked example: a 4-year loan
Take a $10,000 personal loan at a 6% simple annual rate for 4 years.
- P = $10,000
- R = 6% = 0.06
- T = 4 years
- I = $10,000 × 0.06 × 4 = $2,400
- Total = $10,000 + $2,400 = $12,400
Because the interest is the same every year, you can see the pattern at a glance. Each year adds exactly $10,000 × 0.06 = $600 of interest, no matter how many years have already passed. That flat, linear growth is the signature of simple interest.
| Year | Interest that year | Cumulative interest | Balance owed |
|---|---|---|---|
| 1 | $600.00 | $600.00 | $10,600.00 |
| 2 | $600.00 | $1,200.00 | $11,200.00 |
| 3 | $600.00 | $1,800.00 | $11,800.00 |
| 4 | $600.00 | $2,400.00 | $12,400.00 |
Calculating simple interest for months
When the term is in months, convert to years by dividing by 12 before you multiply. Suppose you take an $8,000 short-term loan at 9% for 18 months.
- T = 18 ÷ 12 = 1.5 years
- I = $8,000 × 0.09 × 1.5 = $1,080
- Total = $8,000 + $1,080 = $9,080
The same logic handles any month count: 6 months is 0.5 years, 9 months is 0.75 years, 30 months is 2.5 years. Never plug 18 in directly while the rate is annual, or you'll calculate eighteen years of interest by mistake.
Calculating simple interest for days
Short-term notes and many bridge or business loans are quoted in days, and here you must pick a day-count basis. The two common conventions are:
- Ordinary (banker's) interest uses a 360-day year: T = days ÷ 360.
- Exact interest uses a 365-day year: T = days ÷ 365.
The basis changes the answer. Take a $2,000 note at 12% for 90 days:
| Basis | Calculation | Interest |
|---|---|---|
| Ordinary (360) | $2,000 × 0.12 × (90 ÷ 360) | $60.00 |
| Exact (365) | $2,000 × 0.12 × (90 ÷ 365) | $59.18 |
The 360-day method produces slightly more interest, which is why lenders historically favored it. Always check the loan agreement for which basis applies; on large balances the gap is real money.
Rearranging the formula to solve for rate, principal, or time
Because I = P × R × T has four variables, knowing any three lets you solve for the fourth. Just divide the interest by the product of the other two.
| Solve for | Formula | Example |
|---|---|---|
| Interest (I) | P × R × T | $5,000 × 0.07 × 3 = $1,050 |
| Rate (R) | I ÷ (P × T) | $600 ÷ ($5,000 × 2) = 0.06 = 6% |
| Principal (P) | I ÷ (R × T) | $1,500 ÷ (0.05 × 3) = $10,000 |
| Time (T) | I ÷ (P × R) | $1,200 ÷ ($8,000 × 0.05) = 3 years |
The rate row is especially handy: if a lender quotes a flat dollar fee instead of a percentage, divide that fee by the principal and the term to uncover the real annual rate, then compare it against other offers. To check whether the rate you found is competitive, see how loan interest works.
How to calculate simple interest in Excel or Google Sheets
You don't need a special function. Simple interest is plain multiplication, so a single formula does it.
- Put the principal in cell A1 (for example, 10000).
- Put the rate as a decimal in B1 (for example, 0.06).
- Put the time in years in C1 (for example, 4).
- In D1, type =A1*B1*C1 to get the interest ($2,400).
- In E1, type =A1+D1 to get the total payoff ($12,400).
If you'd rather enter the rate as a true percentage, format B1 as a percent and type 6%; Excel stores it as 0.06 automatically, so the formula still works. For a term in months, replace C1 with the month count and use =A1*B1*(C1/12). For days on a 365 basis, use =A1*B1*(C1/365). There is no built-in SIMPLEINT function because the math is too short to need one; the IPMT and FV functions are for compound interest, which behaves very differently.
Where you'll actually use this math
Simple interest shows up across US borrowing far more than savers realize. The biggest example is auto loans: most are structured as simple-interest contracts, where interest accrues daily on the outstanding balance, so paying early genuinely saves money. Short-term personal loans, car title loans, promissory notes between individuals, and bond coupon payments all run on simple interest too. A $10,000 bond with a 4% annual coupon pays a flat $400 a year, computed as $10,000 × 0.04 × 1, the simple-interest formula in action.
It also matters for what you should not use it for. If you're projecting a retirement account, a CD held to maturity, or any investment that reinvests its earnings, simple interest will badly understate the result, because those vehicles compound. For loan-side planning, pair this with the loan calculator to see a full payment schedule, and for the savings side use the savings calculator. The U.S. Consumer Financial Protection Bureau explains how the quoted rate relates to your real annual cost.
Run your own number
Now you have the formula, the conversions for months and days, the rearrangements to solve for any variable, and the Excel setup. To skip the arithmetic and avoid unit-conversion mistakes, drop your principal, rate, and term into the simple interest calculator and read the interest and total instantly.
Try it yourself
Run your own numbers in the free Simple Interest Calculator — instant, private, no sign-up.
Open the Simple Interest Calculator →Frequently asked questions
- How do you calculate simple interest?
- Calculate simple interest by multiplying the principal by the annual rate as a decimal by the time in years: I = P x R x T. For example, $10,000 at 6% for 4 years earns $10,000 x 0.06 x 4 = $2,400 in interest, for a $12,400 total. Simple interest is charged only on the original principal, so the interest is the same every year.
- What is the formula for simple interest?
- The simple interest formula is I = P x R x T, where P is the principal, R is the annual rate as a decimal, and T is the time in years. To get the total amount owed or received, add the interest back to the principal: A = P + I, or A = P x (1 + R x T). The rate and time must use the same unit, so an annual rate needs the term in years.
- How do I calculate simple interest for months?
- Convert the months to years by dividing by 12, then apply I = P x R x T. For an $8,000 loan at 9% for 18 months, T = 18 / 12 = 1.5, so I = $8,000 x 0.09 x 1.5 = $1,080, for a $9,080 total. Never plug the month count straight into the formula while the rate is annual, or you will calculate years of interest by mistake.
- How do I calculate simple interest for a number of days?
- Divide the days by 360 or 365 to get the time in years, then use I = P x R x T. A $2,000 note at 12% for 90 days earns $2,000 x 0.12 x (90 / 360) = $60 on an ordinary 360-day basis, or $59.18 on an exact 365-day basis. Check your loan agreement for which day-count convention applies, since the 360-day method costs slightly more.
- How do I find the interest rate from simple interest?
- Rearrange the formula to R = I / (P x T). If a $5,000 loan charges $600 of interest over 2 years, the rate is $600 / ($5,000 x 2) = 0.06, or 6%. This is the fastest way to convert a flat dollar fee into an annual percentage rate so you can compare a lender's quote against other offers on equal terms.
- How do I calculate simple interest in Excel?
- Type =Principal*Rate*Time in a cell, using the rate as a decimal and the time in years. With principal in A1, rate in B1, and years in C1, the formula =A1*B1*C1 returns the interest, and =A1+D1 returns the total. For months use =A1*B1*(C1/12). There is no built-in simple interest function because the math is just multiplication.
- What is the difference between simple interest and the total amount?
- Simple interest (I) is only the extra charge, while the total amount (A) is the principal plus that interest. Using I = P x R x T gives the interest alone; A = P + I gives the full payoff or maturity value. For $10,000 at 6% over 4 years, the interest is $2,400 and the total amount is $12,400. Loan payoff quotes use the total, not just the interest.
- Where is simple interest actually used?
- Simple interest is used in most US auto loans, short-term personal loans, car title loans, promissory notes between individuals, and bond coupon payments. A $10,000 bond paying a 4% coupon yields a flat $400 a year. It is not used for savings accounts, CDs held to maturity, or retirement investing, which compound; for those, the result is higher than simple interest predicts.
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