Simple interest is interest calculated only on the original principal. It never earns interest on interest. It is the easiest kind of interest to work out and is used for short-term loans between friends and family, some gold loans, car-loan quotes from dealers (“flat rate”), short bank deposits and most school maths problems. This calculator gives the interest, the total amount and the monthly interest from principal, rate and time.
How to use the simple interest calculator
- Enter the principal, the amount lent or borrowed.
- Enter the rate as a percentage per year.
- Enter the time in years. For months, divide by 12: 18 months = 1.5 years.
- Press Calculate to see the simple interest, the total amount and the interest per month.
Simple interest formula
Amount (A) = P + SI
P = principal R = rate % per year T = time in years
You can rearrange the same formula to find any missing value:
- Principal:
P = (SI × 100) ÷ (R × T) - Rate:
R = (SI × 100) ÷ (P × T) - Time:
T = (SI × 100) ÷ (P × R)
Worked examples
1. Personal loan from a relative
₹1,00,000 at 7% a year for 3 years. SI = 1,00,000 × 7 × 3 ÷ 100 = ₹21,000. Amount to repay = ₹1,21,000.
2. Time given in months
₹25,000 at 12% for 18 months: T = 18 ÷ 12 = 1.5 years. SI = 25,000 × 12 × 1.5 ÷ 100 = ₹4,500.
3. Finding the rate
₹40,000 grows to ₹46,400 in 2 years. SI = ₹6,400, so R = 6,400 × 100 ÷ (40,000 × 2) = 8% a year.
4. Monthly rate (“2 rupees per hundred”)
In local lending you often hear “₹2 per hundred per month”. That is 2% a month, or 24% a year simple interest. On ₹50,000 for 10 months, the interest is 50,000 × 2 × 10 ÷ 100 = ₹10,000.
Simple vs compound interest
For one year with annual compounding, both give the same answer. After that, compound interest pulls ahead because interest earns interest. ₹1,00,000 at 8%:
| Years | Simple interest total | Compound (yearly) total | Difference |
|---|---|---|---|
| 1 | ₹1,08,000 | ₹1,08,000 | ₹0 |
| 5 | ₹1,40,000 | ₹1,46,933 | ₹6,933 |
| 10 | ₹1,80,000 | ₹2,15,892 | ₹35,892 |
| 20 | ₹2,60,000 | ₹4,66,096 | ₹2,06,096 |
As a saver you want compound interest. As a borrower, a true simple-interest loan is cheaper than a compounding one, but watch out for “flat-rate” loans (see below).
Day-count for short periods
For deposits or loans of a few days or weeks, interest is calculated on the exact number of days:
₹2,00,000 at 6.5% for 45 days = 2,00,000 × 6.5 × 45 ÷ 365 ÷ 100 = ₹1,603. Indian banks use a 365-day year for rupee deposits, including in leap years for most products. Some international markets use 360 days.
A warning about flat-rate loans
A “flat” rate charges simple interest on the full original principal for the whole tenure, even though you repay part of it every month. Because your average balance is only about half the original, the effective cost is nearly double the quoted flat rate. A 9% flat rate over 3 years is roughly equal to a 16–17% reducing-balance rate. Use the Loan Calculator to compare it properly.
Frequently asked questions
What is the formula for simple interest?
SI = P × R × T ÷ 100, where P is the principal, R is the annual rate in percent and T is time in years. The total amount is P + SI.
How do I calculate simple interest for months?
Convert months to years by dividing by 12, then use the formula. For 8 months, T = 8 ÷ 12 = 0.667 years. You can also use a monthly rate and multiply by the number of months.
What is ₹2 per hundred per month interest?
It means ₹2 interest for every ₹100 each month: 2% a month, or 24% a year simple interest. On ₹10,000 that is ₹200 a month.
When is simple interest used in real life?
For informal loans, some gold and agricultural loans, short-term deposits under 6 months, flat-rate consumer loans and many textbook and competitive-exam problems.
Is simple interest better than compound interest?
For a borrower, simple interest on a reducing balance costs less. For a saver, compound interest earns more. Over one year with annual compounding, the two are equal.