Simple Interest Calculator — Formula, Examples, and When It Applies
Calculate simple interest on loans and deposits. Understand the SI formula (P×R×T/100), compare with compound interest, and see where simple interest still applies.
Simple interest is the most straightforward interest calculation — you earn (or owe) interest only on the original principal, never on accumulated interest. It's the first interest formula taught in school and still applies to several real-world financial products.
The CalcHub Simple Interest Calculator computes SI instantly from principal, rate, and time.
The Simple Interest Formula
SI = P × R × T / 100Where:
- P = Principal (the original amount)
- R = Annual interest rate (as a percentage)
- T = Time (in years)
Total Amount = P + SI = P × (1 + R×T/100)
Quick Examples
| Principal (₹) | Rate | Time | Simple Interest | Total Amount |
|---|---|---|---|---|
| 1,00,000 | 8% | 1 year | ₹8,000 | ₹1,08,000 |
| 1,00,000 | 8% | 3 years | ₹24,000 | ₹1,24,000 |
| 1,00,000 | 8% | 5 years | ₹40,000 | ₹1,40,000 |
| 5,00,000 | 10% | 2 years | ₹1,00,000 | ₹6,00,000 |
| 50,000 | 12% | 6 months | ₹3,000 | ₹53,000 |
Simple Interest vs Compound Interest
| Feature | Simple Interest | Compound Interest |
|---|---|---|
| Interest calculated on | Principal only | Principal + accumulated interest |
| Growth pattern | Linear (constant) | Exponential (accelerating) |
| Formula | P × R × T / 100 | P × (1 + r/n)^(n×t) − P |
| Better for borrowers | Yes (you pay less) | No (you pay more) |
| Better for investors | No (you earn less) | Yes (you earn more) |
| Year | Simple Interest | Compound Interest (Annual) |
|---|---|---|
| 1 | ₹10,000 (Total: ₹1,10,000) | ₹10,000 (Total: ₹1,10,000) |
| 2 | ₹10,000 (Total: ₹1,20,000) | ₹11,000 (Total: ₹1,21,000) |
| 3 | ₹10,000 (Total: ₹1,30,000) | ₹12,100 (Total: ₹1,33,100) |
| 4 | ₹10,000 (Total: ₹1,40,000) | ₹13,310 (Total: ₹1,46,410) |
| 5 | ₹10,000 (Total: ₹1,50,000) | ₹14,641 (Total: ₹1,61,051) |
Where Simple Interest Is Used
Car loans (flat rate): Some car loans in India quote a "flat rate" which is simple interest on the original principal. A 7% flat rate on ₹5,00,000 for 5 years means you pay ₹1,75,000 in interest regardless of how much principal you've repaid. The effective rate is actually higher (~12-13%) because you're paying interest on the full amount even as the principal decreases. Short-term personal loans: Some informal or short-term lending arrangements use simple interest. Treasury bills and commercial paper: These short-term government and corporate instruments often use simple interest calculations. Education loans (some schemes): Certain government education loan subsidies calculate interest using simple interest methods. Inter-company deposits: Short-term corporate deposits sometimes use SI.How to Use the Calculator
- Open the CalcHub Simple Interest Calculator
- Enter the principal amount (₹)
- Enter the annual interest rate (%)
- Enter the time period (years or months)
- See the interest amount and total payable instantly
Common School Problems Solved
Problem: Find the time required for ₹5,000 to earn ₹1,500 at 10% per annum. Solution: T = SI × 100 / (P × R) = 1,500 × 100 / (5,000 × 10) = 3 years ✓ Problem: At what rate will ₹8,000 become ₹10,000 in 5 years? Solution: R = SI × 100 / (P × T) = 2,000 × 100 / (8,000 × 5) = 5% ✓ Problem: What principal earns ₹4,500 interest at 9% in 2 years? Solution: P = SI × 100 / (R × T) = 4,500 × 100 / (9 × 2) = ₹25,000 ✓When should I use simple interest vs compound interest?
Use simple interest when: the problem or product explicitly states "simple interest," for flat-rate loans, or for very short periods (less than 1 year where the difference is minimal). Use compound interest for savings accounts, FDs, mutual funds, and most modern financial products.
Is simple interest always less than compound interest?
For the same principal, rate, and time (more than 1 year), compound interest always yields more than simple interest. For exactly 1 year with annual compounding, they're equal. For periods less than 1 year, it depends on the compounding frequency.
Why do banks rarely use simple interest?
Because compound interest earns more for the bank on loans and costs them less on deposits. Simple interest is mathematically simpler but financially less profitable. Most modern banking products use some form of compounding.
Related Calculators
- Compound Interest Calculator — the exponential version
- Loan EMI Calculator — monthly payments on reducing balance
- FD Calculator — fixed deposit returns with compounding
- Percentage Calculator — quick percentage math