Simple Interest Calculator
Simple Interest
£1,500
Total Amount
£11,500
Monthly Payment
£319
Interest as % of Principal
15.0%
Calculator Methodology
Uses the simple interest formula: I = P × r × t, where P is principal, r is annual rate, and t is time in years. Simple interest is commonly used for personal loans, car loans, and short-term financing. Results are for illustrative purposes only. Last verified: June 2026.
The simple interest formula explained
Simple interest is calculated using I = P × r × t, where P is the principal (the amount borrowed or invested), r is the annual interest rate as a decimal, and t is the time in years. Crucially, the interest is always calculated on the original principal — never on interest that has already accrued — so growth is linear rather than accelerating.
This makes simple interest predictable and easy to verify, which is why it's still used for many short-term personal loans, car finance agreements, and some fixed-term bonds in the UK.
Worked examples
£5,000 at 4% for 2 years
5,000 × 0.04 × 2 = £400 interest → £5,400 total
£15,000 car loan at 7% for 5 years
15,000 × 0.07 × 5 = £5,250 interest → £20,250 total
£2,000 for 6 months at 6% (annual rate)
2,000 × 0.06 × 0.5 = £60 interest
Simple vs compound interest — why it matters
Over short periods the difference between simple and compound interest is small, but it grows significantly over time. On a 20-year investment, compound interest at the same rate can produce noticeably more growth than simple interest, because each year's interest starts earning interest of its own. If you're saving or investing for the long term rather than borrowing, use our Compound Interest Calculator to see the real difference this makes to your money.
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Frequently Asked Questions
What is simple interest?
Simple interest is calculated only on the original principal amount, not on accumulated interest. It's commonly used for short-term loans and some savings accounts.
How is simple interest different from compound interest?
Simple interest is calculated only on the principal, while compound interest is calculated on both the principal and accumulated interest, leading to faster growth over time.
When is simple interest used?
Simple interest is often used for car loans, personal loans, short-term borrowing, and some types of bonds or certificates of deposit.
Key Terms Explained
Plain-English definitions of the financial terms used in this calculator.
- AER (Annual Equivalent Rate)
- The interest rate on savings accounts once compounding is included, showing what you would actually earn over a year. Use AER — not the headline gross rate — to compare savings accounts fairly.
- Compound Interest
- Interest earned on both your original money and on interest already added. Over long periods compounding accelerates growth dramatically — the earlier you start saving or investing, the more it works in your favour.
- Principal
- The original amount borrowed or invested, before any interest. On a repayment mortgage or loan, each monthly payment covers interest plus a slice of the principal until the balance reaches zero.
- Inflation
- The rate at which prices rise over time, eroding the buying power of money. If inflation is 3%, £100 today buys only about £97 worth of goods next year — which is why long-term savings need to beat inflation.
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Not Financial Advice: This calculator is for informational and educational purposes only. Results are estimates and do not constitute financial advice, recommendations, or regulated advice. We are not authorised or regulated by the Financial Conduct Authority (FCA). Always consult a qualified financial adviser for personalised advice. Tax treatment depends on your individual circumstances and may change. Tax laws and rates may change. Past performance does not guarantee future results.
