Simple Interest Calculator

How simple interest works

Simple interest is calculated only on the original amount, called the principal. The interest does not earn interest of its own, so the same amount is added every year. It is commonly used for short-term personal loans, some bonds and basic fixed-term arrangements.

The formula

Simple interest = P × R × T ÷ 100, and the total amount = P + interest. P is the principal, R is the yearly rate in percent and T is the time in years.

Worked example

Lend or deposit ₹50,000 at 6% for 3 years: interest = 50,000 × 6 × 3 ÷ 100 = ₹9,000, so the total amount is ₹59,000. For a period in months, divide by 12 first. For example, 8 months is 8 ÷ 12 = 0.667 years.

Common mistakes

• Entering months where years are expected. Convert the period first.
• Comparing a simple-interest offer with a compound-interest one at the same rate. The compound offer will always earn more over multiple years.
• Ignoring tax on interest income.

Frequently asked questions

When is simple interest used in real life?

Short-term loans, some vehicle and consumer loans quoted as flat rates, treasury bills and informal lending between individuals often use simple interest.