Simple interest formula and how to calculate it
Simple interest is principal × rate × time. Here is the formula, how to handle months and days, and a quick calculator.
Updated October 30, 2026. Examples are calculated with the formulas shown on our formula page.
I = P × r × t and A = P × (1 + r × t)
I = interest, P = principal, r = annual rate as a decimal, t = time in years, A = total amount repaid.
Simple interest calculator
Interest: $1,200.00 · Total: $6,200.00
Worked examples
| Principal | Rate | Time | Working | Interest |
|---|---|---|---|---|
| $5,000 | 8% | 3 years | 5,000 × 0.08 × 3 | $1,200.00 |
| $2,000 | 12% | 9 months | 2,000 × 0.12 × 9/12 | $180.00 |
| $8,000 | 6.5% | 90 days | 8,000 × 0.065 × 90/365 | $128.22 |
| $1,000 | 5% | 5 years | 1,000 × 0.05 × 5 | $250.00 |
Step by step
- Write the rate as a decimal. Divide the annual percentage rate by 100. 8% becomes 0.08.
- Express time in years. Months divided by 12, or days divided by 365. Nine months is 0.75 years.
- Multiply principal × rate × time. I = P × r × t. $5,000 × 0.08 × 3 = $1,200.
- Add the interest to the principal for the total. A = P + I. $5,000 + $1,200 = $6,200.
Why your loan costs less than I = P × r × t
The formula assumes you owe the full principal for the whole time. On a loan you repay monthly, the balance shrinks, so interest is charged on less and less. A $1,000 loan at 5% for 5 years repaid monthly costs about $132 in interest, not $250. For that, use the loan calculator or the amortization schedule.