Simple vs compound interest, explained
Compound interest (yearly): Total = P × (1 + r ÷ 100)t · Interest = Total − P
P = principal · r = annual rate (%) · t = time in years.
Simple interest grows in a straight line because it is always charged on the original principal. Compound interest grows faster because each year's interest is added to the balance and itself earns interest the next year. Over one year the two are identical; over ten years the gap can be very large.
How to use this interest calculator
- Enter the principal — the amount borrowed.
- Enter the annual interest rate as a percentage.
- Enter the time in years (decimals allowed, e.g. 2.5).
- Choose simple or compound (yearly) interest and press Calculate.
Need monthly payments and a payoff schedule instead? Use our main loan computation calculator, which amortizes the loan month by month.
Frequently asked questions
How do you calculate interest on a loan?
Simple: Interest = P × r × t ÷ 100, total = P + interest. Compound (yearly): Total = P × (1 + r ÷ 100)t, interest = total − principal.
What is the difference between simple and compound interest?
Simple interest is charged only on the original principal. Compound interest is charged on principal plus previously earned interest, so it grows faster over time.
Which is better for a borrower?
Simple interest usually costs less over time. Note that most real amortizing loans (like mortgages) work month by month — use the main loan calculator for those.
Are these results exact?
They are estimates for planning. Fees, compounding periods and lender rules can change real figures. Confirm with your lender.
Is my data sent anywhere?
No. All computations run in your browser; nothing you enter is uploaded, stored or tracked.