Simple Interest Calculator

Simple versus compound interest

Over short periods the difference is small, but it grows with time. ₹50,000 at 9% for three years earns 50,000 × 0.09 × 3 = ₹13,500 of simple interest. With yearly compounding the same deposit earns 50,000 × (1.09³ − 1) ≈ ₹14,751, about ₹1,250 more, because each year's interest itself earns interest. Simple interest is used for many short-term loans, some car loans and certain government bonds that pay interest out instead of reinvesting it.

How simple interest works

Simple interest is charged or earned only on the original principal, never on accumulated interest. The formula is I = P × R × T / 100, where P is the principal, R the annual rate in percent and T the time in years. The total amount is P + I.

Simple interest is used for some short-term loans, many car loans quoted as "flat rate", bonds paying fixed coupons that are not reinvested, and school-level finance problems. For deposits that compound, the compound interest calculator gives the correct figure.

Worked example

Lending 50,000 at 9 percent a year for 2.5 years: I = 50,000 × 9 × 2.5 / 100 = 11,250, so the total repaid is 61,250. If the period is given in months, divide by 12 first: 18 months is 1.5 years, giving 6,750 of interest.

Rearranging the formula

You can solve for any one value if you know the others. Rate = 100 × I / (P × T), time = 100 × I / (P × R) and principal = 100 × I / (R × T). For example, if 20,000 earned 3,000 in 2 years, the rate was 100 × 3,000 / (20,000 × 2) = 7.5 percent.