Simple interest calculator

What the result means

Simple interest is a straight line: the same dollar interest each year. Personal loans advertised as a “flat rate” sometimes use this, which looks cheaper than the equivalent compound/comparison rate.

How it is calculated

I = P × r × t. Total = P + I

• P: Principal.
• r: Annual rate as a decimal.
• t: Time in years.

Interest does not itself earn interest. Doubling the time doubles the interest.

Worked example

$8,000 at 6% for 3 years

A simple-interest example.

Interest

$8,000 × 0.06 × 3 = $1,440

Total

$9,440

You repay $1,440 of interest if the rate never compounds and never reduces as you pay down.

Flat rates can hide a higher comparison rate

Australian credit advertising usually highlights a comparison rate for consumer loans. A flat 6% on the original principal can cost more than a 6% reducing-balance loan. Use the loan repayment calculator for amortising loans.

On $8,000 at 6% for three years, simple interest is a straight $1,440. The same rate on a reducing balance costs less because each repayment cuts the principal. If a lender quotes a “flat rate”, ask for the comparison rate before you treat the two as equal.

Questions