Cost Of Interest Calculator
How much will a loan really cost you in interest? For simple interest, the answer is one line: principal times rate times time. This cost of interest calculator prices a $20,000 loan at 6% over 5 years at $6,000 of interest, and shows what the same loan would cost if it compounded, so you can see exactly what simple interest saves you.
Simple interest = principal x rate x time. Interest is charged on the original principal only, never on accumulated interest. The compound comparison uses annual compounding at the same rate and term.
Quick Answer
A $20,000 loan at 6% simple interest over 5 years costs $6,000 in interest, for a total repayment of $26,000. Interest accrues at a flat $1,200 per year, never on accumulated interest. If the same loan compounded annually, interest would be $6,764.51, so simple interest saves $764.51.
Key takeaways
- Simple interest is linear: every year costs the same $1,200 on the worked example, because the rate always applies to the original $20,000.
- For terms of a year or more, it is cheaper than compounding at the same rate and term, since no interest is ever charged on interest. Here the saving is $764.51. (For part of a year under one year, the fractional compound figure can be slightly lower instead; see the FAQ.)
- Most consumer loans are not simple interest. Mortgages and credit cards amortize or compound, so treat this tool as a baseline for flat-rate and short-term loans, not as a mortgage quote.
- Rate and term pull equally hard in this formula. Doubling either one doubles the interest, which is why a long low-rate loan can cost more in total interest than a short high-rate one.
- Quick Answer
- How to use the cost of interest calculator
- The simple interest formula, worked by hand
- Simple vs compound: where the $764.51 gap comes from
- Where simple interest still shows up, and where it does not
- What most interest calculators get wrong
- Cutting the interest bill: rate, term, and fees
- Frequently asked questions
- Add This Calculator to Your Website
- References
How to use the cost of interest calculator
Enter three numbers and click Calculate. Results stay hidden until you click, and Reset restores the worked example.
- Enter the principal, the amount borrowed before any interest.
- Enter the annual interest rate as a percentage, for example 6 for 6%.
- Enter the time in years. Use decimals for part of a year: 0.5 for 6 months, 0.25 for 3 months.
- Click Calculate Interest and read the verdict badge: under 20% of principal is Modest, 20% to under 50% is Substantial, 50% and up is Steep.
The badge is a cost warning, not a recommendation. A Steep badge on a short emergency loan can still be the right call, and a Modest badge on a very long loan can still hide a large dollar total. Read the dollar figures first, the badge second.
The simple interest formula, worked by hand
Simple interest charges the rate against the original principal only, so the math never changes from year to year: Interest = Principal x Rate x Time, and Total repayment = Principal + Interest.
That flat $1,200 a year is the signature of simple interest. Because the base never grows, the fifth year costs exactly what the first year cost. A Khan Academy simple interest tutorial walks the same formula with different numbers, and the result is always the same shape: a straight line, not a curve.
One honest limit: this calculator uses the decimal-year convention from the live tool. Some lenders count exact days over 360 or 365, which moves a part-year figure by a few dollars. For a full-year term the two conventions agree; for a part-year loan, confirm the lender's day-count rule before treating the figure as a payoff quote.
Simple vs compound: where the $764.51 gap comes from
The same $20,000 at 6% compounded annually ends at $26,764.51, which is $764.51 more than the simple version. The gap starts at zero and grows every year, because each year of compounding charges interest on a larger balance.
| Year | Simple balance | Compound balance | Gap |
|---|---|---|---|
| 1 | $21,200 | $21,200 | $0 |
| 2 | $22,400 | $22,472 | $72 |
| 3 | $23,600 | $23,820.32 | $220.32 |
| 4 | $24,800 | $25,249.54 | $449.54 |
| 5 | $26,000 | $26,764.51 | $764.51 |
The simple balances grow in equal $1,200 steps, which is why the chart below is a straight staircase. At higher rates or longer terms the compound curve pulls away much faster: the same $20,000 at 12% for 10 years costs $24,000 simple but $42,116.96 compounded, a gap of $18,116.96. Run those numbers in the calculator to see it: the compound line is the one that bends upward.
Bars are scaled to the $26,764.51 compound end balance, so the year 5 simple bar stops just short of full width. That missing slice is the $764.51 saving, drawn to scale.
Where simple interest still shows up, and where it does not
Simple interest is rare in modern consumer lending, which is exactly why this tool works best as a baseline. You will find it on some short-term personal loans, certain precomputed auto loans, and payday or title loans where a flat fee behaves like simple interest. Mortgages, credit cards, and student loans amortize or compound instead.
When a loan amortizes, each payment covers that month's interest first and the rest cuts the balance, so the interest slice shrinks as the loan ages. The amortization schedule calculator models that shifting split, and the basic loan calculator gives the full payment picture on a standard loan. If you only know an annual rate and want the monthly figure an amortizing loan uses, the annual interest to monthly calculator converts it.
Flat-fee short-term loans deserve a warning of their own. A $15 fee on $100 for two weeks looks small until it is annualized, and the Consumer Financial Protection Bureau shows how that fee converts to an APR near 400% when it is stretched over a year. Compare short-term offers on APR and total cost, never on the fee alone, because the fee is the whole interest charge dressed up as something else.
What most interest calculators get wrong
Competing tools split into camps, and each camp hides something this page shows in the open:
- Simple-interest-only tools (Bankrate's loan interest calculator): they compute the simple figure correctly but show no compound comparison, so the borrower never learns what the same loan would cost under the other method.
- Amortizing loan tools (CalculatorSoup, LoanCalcFast, Precisr): they are built for monthly payments and schedules, and they never answer the simple-interest question at all. A borrower with a flat-rate offer gets a payment schedule for a loan they do not have.
- Template and spreadsheet tools: they print one number with no method stated, so a simple quote and an amortizing quote look identical on the page even though the totals differ by hundreds of dollars.
- The gap this page fills: the method is named in the header, the compound alternative sits next to the simple result for the same inputs, the per-year figure makes flat-rate offers comparable, and the badge states the cost as a share of principal instead of hiding it behind a rate.
The remaining trap is fees. Origination fees, late charges, and mandatory insurance all raise the true cost above the interest line. The effective interest rate calculator folds fees into a comparable rate; use it alongside this page whenever an offer carries charges beyond interest.
Cutting the interest bill: rate, term, and fees
Three levers move the total, and they do not move it equally in practice. Shortening the term cuts interest dollar for dollar with time: the worked example at 3 years instead of 5 costs $3,600, saving $2,400. Cutting the rate helps just as much in the formula: 4% instead of 6% over 5 years costs $4,000, saving $2,000. Do both, 4% over 3 years, and the bill falls to $2,400, less than half the original.
Fees are the lever that does not show up in this formula at all. A loan that looks cheaper on rate can cost more once an origination fee is added, which is why the APR exists: it rolls the rate and certain fees into one yearly figure. When two offers differ in both rate and fees, compare APR and total cost together, and never sign on the rate alone.
Frequently asked questions
The cost of interest is the total amount of interest you pay over the life of a loan, on top of repaying the principal. For simple interest it is principal times rate times time: $20,000 at 6% for 5 years costs $6,000.
Interest = Principal x Rate x Time, with the rate as a decimal and time in years. Total repayment is principal plus interest. Unlike compound interest, the rate always applies to the original principal, never to accumulated interest.
For terms of a year or more, yes. Simple interest never charges interest on interest, so the borrower pays less: on $20,000 at 6% for 5 years, simple costs $6,000 while annual compounding costs $6,764.51. For part of a year under one year the comparison flips slightly, because a fractional compound exponent gives less than the straight-line simple figure.
Simple interest appears on some short-term personal loans, certain precomputed auto loans, and payday or title loans where a flat fee is effectively simple interest. Mortgages, credit cards, and student loans amortize or compound instead.
Use a decimal fraction of a year: 6 months is 0.5, 3 months is 0.25. A $20,000 loan at 6% for 6 months costs $20,000 x 0.06 x 0.5 = $600. Lenders sometimes count exact days over 360 or 365; the calculator uses the decimal-year convention.
Equally, in simple interest: both enter the formula as multipliers, so doubling either one doubles the interest. That is why a long low-rate loan can cost more in total interest than a short high-rate one.
Not technically, but they are part of the true cost of borrowing. Origination fees, late charges, and required insurance all raise what you pay above the interest line. Compare loans on total cost including fees, not on the interest rate alone.
The interest rate is the price of borrowing the principal alone. The APR is a broader yearly measure that also reflects certain fees and charges, so it is usually higher than the interest rate. When offers differ in fees, the APR is the fairer comparison.
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References
- Khan Academy. Simple Interest Tutorial (formula I = P x R x T, worked examples). Accessed October 25, 2026.
- Mathematics LibreTexts. Simple Interest (definition, maturity value, and examples). Accessed October 25, 2026.
- Mathematics LibreTexts. Amortized Loans (payment formula, total interest over the life of a loan). Accessed October 25, 2026.
- Consumer Financial Protection Bureau. What Is an Annual Percentage Rate (APR) and Why Is It Higher Than the Interest Rate for My Payday Loan? (APR as the fuller cost measure; short-term fee annualization). Accessed October 25, 2026.
- Consumer Financial Protection Bureau. What Is the Difference Between a Mortgage Interest Rate and an APR? (rate vs APR, fees included in APR). Accessed October 25, 2026.
- Consumer Financial Protection Bureau. What Are Prepaid Interest Charges? (daily interest accruing between closing and the first payment period). Accessed October 25, 2026.
- U.S. Bank. What Is Amortization, and Why Does It Matter? (payment split shifting from interest to principal over time). Accessed October 25, 2026.
- Capital One. How to Calculate Daily Interest (daily periodic rate, 365 vs 360 day counts, compounding on revolving balances). Accessed October 25, 2026.
- People Driven Credit Union. How Daily Simple Interest Works (daily simple interest formula, 360 vs 365 year counts, payment-date effects). Accessed October 25, 2026.
- Ally Bank. What Is Simple Interest? (simple vs compound interest in plain terms). Accessed October 25, 2026.
- Mathwords. Simple Interest: Definition, Formula and Examples (formula reference). Accessed October 25, 2026.