Simple Interest
Interest calculated only on the original principal amount.
What is Simple Interest?
Simple interest is interest calculated solely on the original principal amount, with no compounding of prior interest. The formula is Interest = Principal × Rate × Time. Simple interest is used for many short-term loans, car loans, and some bonds. Because it does not compound, simple interest produces lower returns for investors (and lower costs for borrowers) over time compared to compound interest. It is straightforward to calculate but less common in savings products.
Example
Example
A $5,000 loan at 6% simple interest for 3 years costs $900 in interest (5,000 × 0.06 × 3), for a total repayment of $5,900.
Source: Investopedia — Simple Interest
Sources