Simple Interest Formula

Below is the simple interest formula  used to calculate simple interests. Before we discuss the simple interest formula, let's define what simple interest is. If you don't want to use the simple interest formula to calculate simple interest, you can find a simple interest calculator online, usually free of charge. The simple interest formula can help you calculate simple interest for a loan such as car loan and installment loan payoff as well as simple interest for biweekly mortgage payments.

What is simple interest?

Simple interest refers to the financial situation where the interest payment is a fixed amount each pay period. An example of simple interest is if you put $100 in a certificate of deposit which pays 10% p.a. simple interest on deposits. Note that not all certificates of deposit pay simple interests, many pay compound interests. The question is how much would you have at the end of 3 years, for example. With the principal of $100 the interests are shown below.

Simple interest formula

 Where:

• A_n = amount after n time periods
• P = Principal or the original sum of money invested
• n = number of time periods over which the simple interest is calculated
• r = rate of interest per time period

For example, when using this simple interest formula for n =3:

A₃ = 100 + 3 x 0.1 x 100 = 130.

Calculate Simple Interest