How to Calculate Simple Interest. Simple interest is the most straightforward way to charge interest because it’s only calculated based on your original loan amount, called the principal.

For example, if you borrow $1,000 from a friend and agree to pay 6% simple interest for two years, the formula above tells you that you'll pay $120 in total interest ($1,000 x 0.06 x 2).

Simple vs. Compound Interest Interest typically comes in two forms: simple and compound. Nearly all savings accounts pay compound interest , but knowing how to calculate simple interest can help ...

To calculate how much you'll pay in simple interest, multiply the principal (P) by the interest rate (R) by the time period in years (T), then divide that number by 100. Many online lenders ...

For example, if you take out a five-year loan for $20,000 and the interest rate on the loan is 5 percent, the simple interest formula would be $20,000 x .05 x 5 = $5,000 in interest. Who benefits ...