Calculate simple (non-compounding) interest on a principal amount.
Simple interest is calculated only on the original principal: I = P x R x T, with the rate as a decimal and time in years. It does not compound, so the interest earned in year five is identical to year one. That makes it easy to compute and easy to compare, and it is why it survives in contexts where predictability matters more than growth.
In practice you meet it in car and personal loans in some markets, in short-term bridging finance, and in most penalty-interest calculations. The difference against compound interest is small over a year and dramatic over decades — on a long horizon, compound interest pulls far ahead because each period's interest itself starts earning. The practical consequence runs in both directions: simple interest is better for you when borrowing, and worse when investing. It is worth checking which basis applies before comparing two quoted rates, because the same headline percentage means genuinely different money.
Simple interest is calculated only on the original principal, so it is the same every period. Compound interest is calculated on principal plus accumulated interest, so it accelerates. Over one year they are close; over decades the gap becomes very large.
Commonly in short-term loans, some car and personal loans, bridging finance, and penalty or late-payment interest. It is rare in savings products, where compounding normally applies.
It depends which side you are on. When borrowing, simple interest costs less than compound at the same rate. When saving or investing, compound interest earns more, so simple interest works against you.
Express time in the same unit as the rate. For an annual rate, convert months to years by dividing by twelve, so nine months becomes 0.75 years. Mixing units is the most common source of error here.