How to use it
- Use the formula below with your own figures.
The formula
Interest = principal × rate × time.
Worked example
$5,000 at 6% for 2 years is $600 in simple interest.
Frequently asked questions
Simple vs compound?
Simple interest ignores interest-on-interest.
When is this used?
Short-term loans and some auto and personal loans.
Tips
- A shorter term costs less overall even if the payment is higher.
- Check the APR, not just the rate, to compare fairly.
- Read the fine print for fees and prepayment penalties.
Key terms
- APR
- Yearly cost including fees, as a percentage.
- Term
- How long you repay the loan.
- Collateral
- An asset securing the loan.