The formula to calculate simple interest is P x r x t ÷ 100, where P is principal amount, R is rat of interest and T is time. You can easily calculate the interest using the Simple Interest Calculator available online.
Simple interest is one of the methods of calculating the interest charged on loans, fixed deposits, and savings accounts. Simple interest is computed on the principal quantum on a daily, monthly or annually. Under this method, the principal amount remains unchanged during the complete loan tenure.
The simple interest formula is:
(P x r x t) ÷ 100
P = Principal amount
r = Rate of Interest
t = Term of deposit or tenure of the loan in years
It means that you are multiplying the principal quantum with the interest rate and the tenure of the loan/ deposit. Make sure you key in the tenure in years and not months. If you want to enter the tenure in months, then the simple interest formula will be as follows:
(P x r x t) ÷ (100 x 12)
If you want to find out the total amount, i.e. the maturity value of your deposit or the total loan amount payable to the lender, then use the simple interest rate formula mentioned below:
FV = P x (1 + (r x t))
Here, FV means Future Value, P is principal amount, r is rate of interest and t is term. To get the interest payable/ receivable, subtract the principal amount from the future value.
Below is the simple interest formula example to understand how much you will have to pay on your loan using the simple interest formula.
Let’s assume you borrowed a Personal Loan of Rs. 5 Lakhs from a lender based on simple interest. The applicable interest rate is 18% and the tenure is 3 years. In this case, the interest to be paid to the lender by you will be as following:
(5,00,000 x 18 x 3) ÷ 100 = Rs. 2,70,000
The interest to be paid over the tenure of 3 years will be Rs. 2.7 Lakhs. The total repayment amount you owe to the bank will be Rs. 7.7 Lakhs (i.e. Rs. 5 Lakhs + Rs. 2.7 Lakhs). The EMI would be around Rs. 21,389 on a monthly basis.
You can use the simple interest EMI calculator to understand the example in a better way.
You can use the compound interest and simple interest formula to calculate the interest earned or paid. Following are some basic difference between simple interest and compound interest formula:
|Simple Interest||Compound Interest|
|Calculated on the total principal for the entire tenure.||Calculated on the principal amount monthly, quarterly, half-yearly or annually.|
|The interest paid or earned will remain unchanged even if the calculation is done periodically.||The interest paid or earned will increase in case the frequency of interest accumulation or payment is more.|
|The interest accumulated on the principal is not added to the interest calculation for the next period.||The interest accumulated periodically is added to the interest calculation for the next period.|
|It will not earn you enough for savings & investments but will be beneficial if you take a loan.||It will earn you more in savings & investments but will be expensive on a loan.|
|The interest accumulation is slow.||The interest accumulation is fast as you get interest on the increasing interest amount as well.|
|It is beneficial for the borrower but not for the lender as borrowers will be paying less on a loan taken on simple interest.||It is beneficial for the lender but not for the borrower as borrowers will be paying more on a loan taken on compound interest.|
|Not a good option for wealth creation.||Good option for wealth creation.|
|It is easy to calculate.||It involves a complicated calculation.|
Following are the simple and compound interest formula:
Simple interest is a method used for calculating the proportion of interest paid on a sum over a specific time period at a set rate.
Yes, the interest accumulation is slow when simple interest is used for calculation of the maturity amount of the deposit.
Yes, you can calculate simple interest online using the simple interest formula calculator.
Yes, the principal amount remains unchanged on simple interest.