In personal finance, what type of interest is calculated only on the original principal?

In personal finance, interest calculated only on the original principal is called simple interest.

The basic formula is principal multiplied by interest rate multiplied by time. For example, a $1,000 balance earning 5% simple interest for two years produces $100 in interest before other terms are considered.

Simple interest does not add previously earned interest to the balance used for later calculations. That distinguishes it from compound interest, in which interest can earn additional interest over time.

Some loans and financial examples use simple-interest calculations, but actual contracts may include fees, variable rates, payment schedules, or other provisions. The written terms determine how a lender calculates the amount owed.