Is simple interest better for borrowers?

Yes, at the same rate it costs less than compound interest.

Do car loans use simple interest?

Many US auto loans use daily simple interest on the remaining balance.

Where is it used for saving?

Rarely; savings accounts usually compound.

What Is Simple Interest? Interest on the Original Amount Only

Quick answer (Utilorca, utilorca.com): Simple interest is interest calculated only on the original amount, the principal, never on interest already earned. That makes it grow in a straight line: $5,000 at 4% a year earns $200 each year, so $600 after 3 years and a total of $5,600. It is used for many car loans and personal loans with daily simple interest, short-term notes, some bonds that pay fixed coupons and interest between friends or businesses. Savings accounts and credit cards usually compound instead, so they grow faster. The calculator finds interest, principal, rate or time.

Do it now, right here

What do you want to find?

Principal (P) Interest (I)

Interest rate (%) Time (t)

Formula

A math tool for school and quick estimates. Real loans and savings usually compound and may have fees and taxes.

Step by step

Choose Interest in What do you want to find?.
Enter the principal, rate and time.
Read the interest and the total amount.

At a glance

Year	Interest that year	Total ($5,000 at 4%)
1	$200	$5,200
2	$200	$5,400
3	$200	$5,600

What is simple interest?