Simple Interest Calculator

Simple interest is calculated only on the original principal, so the amount added each period is always the same. [Compound](/financial/compound-interest-calculator) interest is calculated on the balance, which includes interest already earned.

$10,000 at 5% earns $500 every year with simple interest. With compounding, year one earns $500, year two $525, year three $551, and it keeps rising.

Most US car loans are, yes. Interest accrues on the outstanding balance and does not compound, so paying extra or paying early genuinely reduces what you owe.

The exception is precomputed interest, where the total is fixed at the start and paying early saves much less. It is uncommon now but worth checking the loan agreement for.

Convert the time to a fraction of a year. Six months is 0.5, and 90 days is 90 ÷ 365 = 0.2466.

So $10,000 at 5% for 90 days is $10,000 × 0.05 × 0.2466 = $123.29. Some lenders use a 360-day year, which gives slightly more interest.

It depends which side you are on. Borrowing: simple interest is better, since the debt cannot snowball. Saving: compound is better, because your interest earns interest.

This is why savings accounts advertise compounding and lenders offering simple-interest loans advertise that too. Both are describing the same mechanism from opposite sides.

Because it isolates the relationship between principal, rate and time without the extra step of compounding, which makes it the right place to start.

It also has real applications, mainly in loans and bonds. Understanding it makes compound interest much easier to follow, since compounding is just simple interest applied repeatedly to a growing balance.

Related, and not identical. The formula on this page charges interest on the original principal for the whole term. A simple interest loan charges interest on the outstanding balance, recalculated as that balance falls.

The practical consequence is the same in the way that matters: interest never compounds, so paying early genuinely reduces what you owe. Most US car loans work this way.

A fixed rate stays the same for the whole term, so the payment is predictable from day one. A variable rate moves with an underlying benchmark, so the payment can rise or fall.

Variable rates are usually built as index plus margin. The index moves with the market — most US variable lending now references SOFR or the prime rate, after LIBOR was retired in 2023. The margin is fixed in your agreement and does not change.

Fixed costs a little more at the start and removes the risk. Variable starts cheaper and hands you the risk. The honest test is whether you could still afford the payment if the rate rose by two or three points.

Six things do most of the work. Credit score is usually the largest single factor. Whether the loan is secured matters nearly as much: a mortgage or car loan is backed by an asset, so it costs less than an unsecured credit card.

Then term length (longer often means a higher rate), loan size, your debt-to-income ratio, and the market rate at the time you borrow.

The first five are about you and are partly within your control. The sixth is not, which is why the same borrower can be quoted very different rates a year apart.

Yes, as ordinary income in the year it is credited. A bond paying a fixed coupon, or a loan you have made to someone, both generate taxable interest reported on a 1099-INT or 1099-OID.

Interest on Treasury securities is exempt from state and local income tax, which can matter in a high-tax state even though the headline rate looks lower.