Simple interest is paid each period only on the original principal, never on accumulated interest. After periods at simple-interest rate :
Interest is the same dollar amount each period: .
The contrast is Compound interest, where interest gets added to the principal at the end of each period and earns interest itself in the next period: , growing exponentially rather than linearly.
Simple interest is rare in real-world finance. Banks, mortgages, bonds, savings accounts, credit cards: practically all use compound interest. It shows up in some short-term notes (where the difference doesn’t matter much because is small), in some regulatory disclosures, and in introductory teaching as a stepping stone before compound interest.
For engineering economics, every formula in a PW / AW / IRR calculation assumes compound interest. If a problem hands you a “simple interest” rate, you usually have to convert it to a compound-equivalent rate before plugging into the interest factor formulas.