Simple Interest Calculator (I = Prt)
Solve for Interest (I), Principal (P), Rate (r), or Time (t). Directly compare linear simple growth against compound interest with interactive SVG charts.
Simple vs Compound Interest Divergence
How much interest does compounding add over the exact same principal, rate, and time horizon?
| Method | Formula | Total Interest Accrued | Final Maturity Balance | Difference vs Simple |
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⚠️ 5 Fatal Simple Interest Traps & Financing Pitfalls
🚨 The Add-On Interest Auto Loan Deception
Some subprime vehicle lenders quote a seemingly low "6% simple interest rate" but calculate interest using precomputed "add-on interest." Under this deceptive structure, interest ($I = Prt$) is computed upfront on the entire starting balance for all years and added to the debt, resulting in an effective APR of nearly 11% to 12% because you continue paying interest on the full original principal even after paying down half the balance.
📉 The "Rule of 78s" Early Payoff Penalty
True simple interest loans only charge interest on the outstanding principal balance for the exact days you borrow the funds. In contrast, precomputed installment contracts governed by the archaic "Rule of 78s" front-load interest charges into early months. Paying off a Rule of 78s loan halfway through its term yields virtually zero interest savings.
🏦 The Banker's Rule (360-Day Commercial Year) Surcharge
Many commercial banks and bond markets calculate short-term simple interest using the "Banker's Rule" (Exact/360), which divides the exact number of calendar days elapsed by 360 instead of 365. Because $365 / 360 = 1.01389$, this subtle calendar convention extracts an extra 1.39% in annual interest revenue from borrowers.
🔢 Simple Interest Rate vs Effective Annual Rate (EAR)
A simple interest rate of 12% sounds identical to a compounding rate of 12%. However, if interest is debited or credited on a monthly basis, the compounding effect produces an Effective Annual Rate of $(1 + 0.12/12)^{12} - 1 = 12.68%$, adding hundreds of dollars in unbudgeted financing costs over the life of credit card or line-of-credit balances.
⏳ Multi-Decade Opportunity Cost vs Compound Growth
Keeping long-term savings in linear simple-interest promissory notes or non-reinvested coupons incurs severe opportunity loss. Over 30 years at 7%, a $10,000 simple interest vehicle yields $21,000 in total interest ($31,000 final value), whereas compound interest produces over $66,122 in interest ($76,122 final value)—a massive $45,122 penalty for linear interest.