Simple Interest Formula
Calculate simple interest with the formula I = Prt.
Learn how basic interest works on loans and investments without compounding.
The Formula
I = P × r × t
Simple interest is calculated only on the original principal amount. Unlike compound interest, it does not earn interest on previously accumulated interest.
Variables
| Symbol | Meaning |
|---|---|
| I | Interest earned (or owed) |
| P | Principal (the original amount) |
| r | Annual interest rate (as a decimal, so 8% = 0.08) |
| t | Time in years |
Example 1
You lend a friend $2,000 at 5% simple interest for 3 years.
P = $2,000, r = 0.05, t = 3
I = 2000 × 0.05 × 3
I = 2000 × 0.15
I = $300 — Your friend owes you $2,300 in total.
Example 2
You take out a $15,000 car loan at 7% simple interest for 4 years.
P = $15,000, r = 0.07, t = 4
I = 15000 × 0.07 × 4
I = 15000 × 0.28
I = $4,200 — You will pay $19,200 in total.
When to Use It
Use the simple interest formula when:
- Calculating interest on short-term loans or personal lending
- Working with bonds that pay simple interest
- Estimating basic returns on a fixed deposit
- You want a quick approximation before using compound interest