How it works
Simple interest is charged on the original amount only, never on interest already earned: I = P × R × T ÷ 100, and the total you repay is P + I.
- Take the principal — the amount borrowed or invested.
- Multiply by the annual rate and the number of years, then divide by 100.
- Add the interest to the principal for the total.
Simple interest is used for most car and personal loans in India, for fixed deposits that pay interest out rather than reinvesting it, and for short-term lending. Anything that reinvests its own interest uses compound interest instead, which grows faster the longer it runs.
Examples
Worked examples:
- ₹1,00,000 at 8% for 3 years: 100000 × 8 × 3 ÷ 100 = ₹24,000 interest, ₹1,24,000 in total.
- ₹50,000 at 12% for 6 months: 50000 × 12 × 0.5 ÷ 100 = ₹3,000 interest.
- The same ₹1,00,000 at 8% compounded yearly for 3 years would be ₹25,971 — about ₹1,971 more.
Simple Interest Calculator: frequently asked questions
- What is the simple interest formula?
- SI = (Principal × Rate × Time) ÷ 100, with the rate per year and time in years.
- How is simple interest different from compound interest?
- Simple interest is always calculated on the original principal; compound interest is also charged on interest already added, so it grows faster.
- How do I find the time or rate?
- Rearrange the formula: T = SI × 100 ÷ (P × R) and R = SI × 100 ÷ (P × T).