Simple interest, interest-only payments, HELOC costs, and policy loan balances — calculated instantly.
Simple interest is calculated only on the original principal: I = P × r × t. Borrow $20,000 at 10% for 3 years and you owe exactly $6,000 in interest — no compounding, no shifting payment split.
Amortized loans (mortgages, auto loans) work differently: interest is recalculated monthly on the remaining balance, so early payments are interest-heavy. Simple interest is common for short-term personal loans, promissory notes, and loans between individuals.
If your loan has a fixed monthly payment that pays it down to zero, it's amortized — use our Loan & Mortgage Calculator for that. Not sure which you have? Read Simple Interest vs. Amortized Loans.
An interest-only payment is just balance × rate ÷ 12. On $100,000 at 8%, that's about $667/month. It's the cheapest possible payment — but the principal never shrinks.
Interest-only structures appear in HELOCs during the draw period, bridge loans, some investment property loans, and margin loans. They make sense for short holding periods or when cash flow matters more than payoff.
The risk: when the interest-only period ends, payments jump sharply because the full balance must then be repaid in less time.
A home equity line of credit has two phases. During the draw period (typically 10 years) you borrow as needed and usually pay interest only. During the repayment period (typically 10–20 years) the outstanding balance amortizes into much larger principal-and-interest payments.
Payment shock is real: a $100,000 balance at 8.5% costs ~$708/month interest-only, but ~$985/month once amortized over 15 years. Most HELOCs also carry variable rates, so payments can rise further.
Use the HELOC tab above to see both phases side by side before you borrow. For the full breakdown of the reset and how to prepare, read our guide to HELOC payment shock when the draw period ends.
A policy loan borrows against your whole life or universal life policy's cash value. There's no required payment schedule and no credit check — but interest (typically 5–8%) accrues and compounds annually.
Left unpaid, the balance grows exponentially. If it ever exceeds your cash value, the policy can lapse — potentially triggering income tax on the gain and ending your coverage. Any outstanding balance is also deducted from the death benefit.
The Policy Loan tab above projects your balance year by year and flags when it approaches your cash value. Paying just the annual interest keeps the balance frozen and the policy safe. Our full guide to how policy loans work and lapse covers the tax consequences and four safety rules.
Simple interest is calculated only on the original principal: I = P × r × t. Borrow $15,000 at 9% for 18 months and the interest is exactly $15,000 × 0.09 × 1.5 = $2,025 — no compounding, no shifting payment split. This calculator handles that case, plus the two common real-world variants people actually encounter: interest-only credit lines and policy loans.
A home equity line of credit usually starts with an interest-only draw period. On a $60,000 balance at 8.25%, the interest-only payment is $60,000 × 0.0825 ÷ 12 = $412.50 a month — and after years of paying it, you still owe the full $60,000. When the draw period ends and the balance converts to a 20-year amortized loan at the same rate, the payment jumps to about $511 a month, and every payment finally includes principal. That jump is the 'payment shock' our HELOC article covers in depth.
Loans against whole-life cash value typically accrue simple or annually-compounded interest and have no required payment schedule at all. The danger is quiet growth: unpaid interest is added to the loan, and if the balance ever exceeds the cash value the policy can lapse — potentially triggering a tax bill on gains. Use the calculator to see what the balance becomes if you pay nothing for several years.
Read the promissory note or account agreement for the words 'amortized', 'interest-only', or 'simple interest'. A fixed payment that never changes over a multi-year term almost always means amortized; a payment that equals balance × rate ÷ 12 means interest-only; interest quoted as a flat dollar amount up front often means simple interest. The same 9% costs meaningfully different amounts under each structure — that comparison is exactly what this tool is for.
Is simple interest cheaper than compound interest?
For the same rate and time, yes — simple interest never charges interest on interest. But lenders price loans knowingly, so a simple-interest product is not automatically a better deal; compare total dollars paid.
Why does my HELOC payment barely reduce my balance?
During the draw period most HELOCs require interest-only payments, so the balance only falls if you voluntarily pay principal. Check whether you are still in the draw period.
Do payday and short-term loans use simple interest?
Many quote a flat fee that works out to simple interest over weeks — but at triple-digit annualized rates. Convert any flat fee to an annual rate before comparing it with other credit.
Last updated: August 8, 2026 · Reviewed by the DollarDrill editorial team. Formulas follow standard published methods; see our editorial standards & sources. Results are educational estimates, not financial advice.