Simple Interest

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Interest is defined as the fee paid by a borrower of assets to the owner as a form of compensation for the use of the assets. It is the price paid for the use of borrowed money or the money owed by the deposited funds.

Principal is the amount that is taken initially or invested initially.

Formula for Simple Interest

Simple interest is calculated only based on the principal amount or the portion of the simple interest that remains unpaid.

Simple Interest
(P × N × R)
Here, P represents the principal amount
N represents the number of years
R represents the rate of interest

Total Amount to be paid

The sum of principal and simple interest is the total amount you need to pay.

Total Amount = Principle + Simple Interest
Let the total amount be represented as ‘A’ then,
A = P + S.I
A = P + (P × N × R) / 100
Let r = R / 100 which represents the rate of interest in decimal form then
A = P + (P × N × r)
A = P × (1 + N × r) - this is the formula used to any parameter in this equation
For total amount, A=P × (1 + N × r)
For principle amount, P = A / (1 + N × r)
For rate of interest, r = (1 / t) × (A / P - 1)
For rate of interest in percentage, R = r × 100
For time period, t = (1 / r) × (A / P - 1)


  • While taking a loan, choose the bank or source of loan that collects simple interest rather than compound interest.
  • While lending money or making an investment, choose the method or plan that gives you compound interest rather than simple interest.

New to compound interest? Check it out at our Compound Interest Calculator?

Note: Simple interest is always paid in the principal invested and the accrued interest is not added to the principle.

Example for Simple Interest

For example, if we have Rs. 1000 invested at 10% simple interest per annum for 5 years, you will receive Rs 100 as interest each year for the 5 years of investment.

Simple Interest
Year Principle Interest Amount at the end
1 1000 1000*10%=100 1,100
2 1000 1000*10%=100 1,200
3 1000 1000*10%=100 1,300
4 1000 1000*10%=100 1,400
5 1000 1000*10%=100 1,500

So at the end of the 5th year, the amount we get is 1,500.

What Types of Loans Use Simple Interest?

Simple interest usually applies to short-term personal loans where the time period is very short. Note that most mortgages do not use simple interest. Planning for a loan and want to estimate a rough EMI that you many have to pay? Use our EMI calculator.

Some banks use simple interest method for mortgages for bi-weekly payment plans. Bi-weekly plans generally help consumers pay off their loans early because the borrowers make two extra payments a year. This will save interest over the tenure of the loan by clearing off the principal faster.

Some limitations of simple interest:

  • Simple interest is ignoring the compound where the interest on interest does not have to be paid for.
  • With simple interest, you don’t really get anything when you lend money.
  • Simple interest is usually used for small loans that can be paid back quickly.
  • Simple interest is money that is added to a principal amount that you have to pay over a period of time and it does not change in the total period of time. This is disadvantageous if the simple interest percentage is higher.

Targeting to increase your salary and clear off your loan faster? See how you can increase your salary at our Salary Calculator page

How CalculatorHut’s Simple Interest calculator helps you?

Using Calculator Hut’s simple interest calculator, your simple interest calculations become easier. Enter the loan amount and the yearly interest and click on calculate. You will get how much you need to pay for one-month as well as one year.

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