Simple Interest Calculator

Where simple interest shows up

Simple interest is the cleanest formula in finance: principal times annual rate times time. Interest is charged only on the original sum, never on interest that has already piled up. In the Philippines you meet it more often than you might expect. Many informal loans between people, some promissory notes, short-term salary advances, and certain financing arrangements quote interest this way because it is easy to compute and easy to check. This tool gives you both the interest earned over the term and the maturity value, the principal plus that interest, so you can see exactly what a fixed-rate, non-compounding arrangement returns.

PHP 100,000 at 6 percent for three years

Use the values the tool loads by default. You place PHP 100,000 at a 6 percent annual rate for three years. The interest is PHP 100,000 multiplied by 0.06 multiplied by 3, which is PHP 18,000. Add that to the principal and the maturity value is PHP 118,000. Each year contributes the same PHP 6,000, because the rate always applies to the original PHP 100,000 and never to the interest already earned.

A straight line, not a curve

The chart climbs in equal steps, and that is the whole point of simple interest. Because every year adds the same PHP 6,000, the balance traces a straight line rather than the accelerating curve you get from compounding. The gap matters more the longer the term runs. Over three years the difference between simple and compound interest at 6 percent is small, only a few hundred pesos. Stretch the same PHP 100,000 to fifteen or twenty years and compounding pulls far ahead, since it keeps paying interest on interest while simple interest stays flat at PHP 6,000 a year. A practical tip: if you are the lender, simple interest works against you on long horizons; if you are the borrower, it works in your favor.

One common mistake is comparing two offers purely on the headline rate. A loan quoted at simple interest and another at compound interest are not the same cost even when the percentage matches, and the difference grows with the term. When you compare a savings product to a loan, check which method each one uses before you judge them side by side. An edge case worth flagging: some lenders advertise a low simple-interest rate but add fees or compute the rate on the original balance for the whole term even as you pay it down, which quietly raises the true cost. Read how the interest is applied, not just the number on the page.

When the peso you earn is not the peso you keep

This tool reports gross interest. If the money is actually parked in a Philippine bank deposit, the interest is usually subject to a final withholding tax, which the source data here sets at 20 percent and which the bank deducts at source. On the PHP 18,000 of interest in the example, that would shave off roughly PHP 3,600, leaving about PHP 14,400 in hand. A private loan between individuals is different, where the interest is ordinarily declared as income rather than taxed at source. Treat the 20 percent as the rate modelled in the underlying data, not as certified current law, and confirm the prevailing rate and which instruments it covers with the Bureau of Internal Revenue.

How do I convert a monthly rate to use here?

This calculator expects an annual rate. If a lender quotes, say, 1 percent a month, multiply by twelve to get the 12 percent annual figure to enter. Be careful, because a quoted monthly rate on the original balance is far costlier than it looks once annualized, and many short-term lenders rely on that confusion.

Can I use a term in months rather than years?

Yes, by expressing the months as a fraction of a year. Six months is 0.5 and eighteen months is 1.5. The formula handles partial years cleanly because nothing compounds, so PHP 100,000 at 6 percent for half a year simply earns PHP 3,000.