Quick answer: simple interest is I = P × R × T: principal × yearly rate (as a decimal) × time in years. 50,000 at 10% for 3 years earns 50,000 × 0.10 × 3 = 15,000, so the total repaid is 65,000. For months divide by 12; for days divide by 365 (or 360 where banks use that convention).
When simple interest is used
Simple interest charges the rate on the original amount only – interest never earns interest. You’ll meet it in:
- Short-term loans and some car loans with “flat” interest.
- Interest on late invoices and court judgments.
- Certificates of deposit that pay interest out instead of reinvesting it.
- School and exam questions – it is the first interest formula everyone learns.
Converting time correctly
| Time given | T in years | Example: 50,000 at 10% |
|---|---|---|
| 3 years | 3 | 15,000 |
| 18 months | 18 ÷ 12 = 1.5 | 7,500 |
| 90 days (365-day year) | 90 ÷ 365 = 0.2466 | 1,232.88 |
| 90 days (360-day year) | 90 ÷ 360 = 0.25 | 1,250.00 |
The 360-day “banker’s year” makes daily interest slightly higher. It is common in US commercial lending and money markets; most personal calculations use 365.
Rearranging the formula
- Rate: R = I ÷ (P × T)
- Time: T = I ÷ (P × R)
- Principal: P = I ÷ (R × T)
Need interest on interest instead? Use the compound interest calculator.
Most bank loans charge interest on the falling balance instead – the loan (EMI) calculator shows that monthly payment, and the compound interest calculator shows what happens when interest is added to interest.
How to calculate simple interest
- Enter the principal. The amount borrowed or invested.
- Enter the yearly rate. As a percentage – 10 for 10%.
- Enter the time. In years, months or days; for days choose a 365 or 360-day year.
- Read the interest. See the interest, the total amount and the formula with your numbers.
Worked example: interest on an overdue invoice
An invoice of 2,400 is paid 45 days late; the contract allows 18% a year.
- Time in years: 45 ÷ 365 = 0.1233.
- I = 2,400 × 0.18 × 0.1233 = 53.26.
- Total due: 2,400 + 53.26 = 2,453.26.
Common mistakes
- Using 18 instead of 0.18 for the rate in the formula.
- Using months as years – 6 months is 0.5, not 6.
- Comparing a flat (simple) loan rate directly with a reducing-balance rate.
- Counting days wrongly – use the date calculator for the exact number of days.
Frequently asked questions
What is the formula for simple interest?
I = P × R × T, where P is the principal, R the yearly rate as a decimal and T the time in years.
How do I calculate simple interest for months?
Divide the number of months by 12 to get years. 18 months is 1.5 years.
How do I calculate interest for a number of days?
Divide the days by 365 (or by 360 if your agreement uses a banker’s year) and use that as T.
What is the difference between simple and compound interest?
Simple interest is only on the original amount. Compound interest is also charged or earned on interest already added, so it grows faster.
How do I find the total amount?
Add the interest to the principal: A = P + I, or A = P × (1 + R × T).
Is a flat-rate loan simple interest?
Yes. Flat-rate loans charge simple interest on the full original amount for the whole term, which costs more than the same reducing-balance rate.
How do I calculate simple interest per month?
Divide the yearly interest by 12: P × R ÷ 12. 50,000 at 10% earns about 416.67 a month.
How do I find the rate if I know the interest?
R = I ÷ (P × T). If 50,000 earned 15,000 in 3 years, R = 15,000 ÷ 150,000 = 0.10, or 10%.