Simple Interest Calculator

What is Simple Interest?

Simple Interest is a quick and easy method of calculating the interest charge on a loan or the interest earned on an investment. Unlike compound interest, simple interest is calculated only on the principal amount, not on the accumulated interest. It is widely used in car loans, short-term personal loans, and some types of mortgages.

How to Use the Simple Interest Calculator?

Using our Simple Interest Calculator is straightforward and can help you plan your finances effectively. Just follow these steps:

• Principal Amount: Enter the initial amount of money you are investing or borrowing.
• Rate of Interest: Input the annual interest rate (in percentage).
• Time Period: Select the duration for which the money is invested or borrowed (in years).

The calculator will instantly show you the total interest payable or receivable and the final maturity amount.

Simple Interest Formula

The standard formula used for calculating simple interest is:

SI = (P × R × T) / 100

• SI = Simple Interest
• P = Principal Amount
• R = Rate of Interest per annum
• T = Time period in years

For example, if you borrow ₹10,000 at an interest rate of 5% for 3 years, the interest will be (10000 × 5 × 3) / 100 = ₹1,500.

Simple Interest vs Compound Interest

The main difference between simple and compound interest is what the interest is calculated on. Simple interest is calculated only on the principal amount. Compound interest is calculated on the principal amount plus any accumulated interest. Over long periods, compound interest yields significantly higher returns compared to simple interest.

When is Simple Interest Used?

Simple interest is commonly used in the following scenarios:

• Car Loans: Many auto loans use simple interest calculation, where interest is paid on the outstanding balance.
• Short-term Personal Loans: Loans for a few months or a year often follow this structure.
• Certificates of Deposit (CDs): Some CDs pay simple interest at maturity.
• Discounts on Bills: Early payment discounts on invoices are often calculated using simple interest logic.

Disclaimer: This Simple Interest Calculator is designed for educational and estimation purposes only. While we strive for accuracy, actual bank calculations may vary due to different policies, compounding frequencies, or leap years. Please consult a financial advisor before making any major financial decisions.