What is the difference between simple and compound interest?

Simple interest is calculated only on the original principal amount. Compound interest is calculated on the principal amount and also on the accumulated interest of previous periods. Essentially, with compound interest, you earn 'interest on your interest,' leading to faster growth over time. You can compare results with our Compound Interest Calculator .

When is simple interest typically used?

Simple interest is most commonly used for short-term loans, like auto loans or personal loans. Some basic savings accounts may also use simple interest, although most modern financial products utilize compounding.

Free Online Calculators for Every Need

The Simple Interest Calculator helps you determine the interest earned or paid on a principal sum at a fixed annual rate over a specific period. It's a fundamental concept in finance, often used for short-term loans and investments where interest is not compounded.

💰 How It Works

To calculate simple interest, you need to provide:

Principal Amount (P): The initial sum of money invested or borrowed.
Annual Interest Rate (R%): The yearly percentage rate at which interest is calculated.
Time Period: The duration for which the money is borrowed or invested, selectable in various units (days, weeks, months, years).

The calculator uses the standard formula for simple interest:

Simple Interest (SI) = (P × R × T) / 100

And the total amount payable or receivable is:

Total Amount = Principal + Simple Interest

📊 Key Outputs

Simple Interest Earned/Payable: The total interest amount calculated over the period.
Total Amount: The sum of the principal amount and the simple interest.
Pie Chart: A visual representation of the principal versus the interest earned.

Frequently Asked Questions (FAQ)

What is the difference between simple and compound interest?: Simple interest is calculated only on the original principal amount. Compound interest is calculated on the principal amount and also on the accumulated interest of previous periods. Essentially, with compound interest, you earn "interest on your interest," leading to faster growth over time. You can compare results with our Compound Interest Calculator.
When is simple interest typically used?: Simple interest is most commonly used for short-term loans, like auto loans or personal loans. Some basic savings accounts may also use simple interest, although most modern financial products utilize compounding.
How does the time period unit affect the calculation?: The calculator requires the time period to be converted into years to work with the annual interest rate. It automatically handles this conversion whether you input days, weeks, months, or years.

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Simple Interest Calculator