What is this calculator?
This calculator works out interest charged only on the original principal, with no interest on interest. The amount earned is the same every period, which makes the total grow in a straight line rather than a curve.
Use it when:
- A loan or deposit quotes flat interest on the original amount.
- You want a baseline to compare against a compounding alternative.
- You are learning how simple and compound interest diverge over time.
Intended for: Borrowers assessing a flat-rate loan, savers comparing products, and students of interest mathematics.
How is this calculated?
- The tenure is converted to a number of years.
- The principal is multiplied by the annual rate to give the interest for one year.
- That annual interest is multiplied by the number of years. Because it is always calculated on the ORIGINAL principal, each year contributes exactly the same amount.
- The maturity amount is the principal plus the total interest.
Formulas
Simple interest
I = P × i × t
Interest accrues on the principal alone, so it is linear in time.
- P
- Principal
- i
- Annual rate as a decimal (e.g. 0.08 for 8%)
- t
- Time in years
Maturity amount
A = P + I
The original principal plus all interest accrued.
Example
A principal of 50,000 at 8% per year for 3 years.
- One year of interest: 50,000 × 0.08 = 4,000.
- Three years: 4,000 × 3 = 12,000.
- Maturity amount: 50,000 + 12,000 = 62,000.
Result: Interest earned 12,000, maturity amount 62,000.
Frequently asked questions
How much does compounding actually add?
On the example above, annual compounding at the same 8% would produce about 12,986 instead of 12,000. The gap widens sharply with time — over decades it dominates the result.
Why do some loans quote a flat rate?
A flat rate is calculated on the original principal for the whole term, even though you are repaying it as you go. That makes a flat rate substantially more expensive than a reducing-balance rate of the same number.
Can I use a tenure in months or days?
Yes. The tenure is converted to years internally; a 6-month term is treated as 0.5 years.
Assumptions
What this calculator takes as given:
- The interest or return rate you enter is treated as fixed for the entire period.
- Every period is treated as equal in length; no calendar-day, leap-year, or day-count convention is applied.
- Interest is never added to the principal, so it never itself earns interest.
- The principal remains outstanding in full for the whole term.
Limitations
What this calculator cannot know or does not model:
- Partial repayments during the term are not modelled — the principal is assumed constant.
- Tax on interest is not applied.
- Day-count conventions used by lenders (for example 360-day years) are not applied.