Calculate simple interest on your loans and investments - free, no signup required.
Simple Interest (SI) is a method of calculating the interest charged on a principal amount for a given period of time. Unlike compound interest, simple interest is calculated only on the original principal - it does not include interest on accumulated interest. This makes it straightforward and easy to compute.
SI = (P x R x T) / 100
Total Amount = P + SI
Where:
For example, if you invest ₹1,00,000 at 7% for 5 years: SI = (1,00,000 x 7 x 5) / 100 = ₹35,000. Total amount = ₹1,35,000.
A second example, this time a loan: you borrow ₹2,50,000 at 9.5% a year for 3 years. SI = (2,50,000 x 9.5 x 3) / 100 = ₹71,250, so you repay ₹3,21,250 in total. The interest is the same ₹23,750 in each of the three years, because it is always worked out on the original ₹2,50,000.
The time box takes whole years, so a part-year has to be converted by hand. For months, divide by 12: ₹50,000 at 12% for 18 months uses T = 18 / 12 = 1.5, giving SI = (50,000 x 12 x 1.5) / 100 = ₹9,000. For days, divide by 365: ₹1,00,000 at 8% for 90 days gives SI = (1,00,000 x 8 x 90) / (100 x 365), about ₹1,973. Some banks and money-market instruments use a 360-day year instead, which makes the interest slightly higher, so check which convention your document uses.
The same formula can be rearranged to find any missing value. Rate R = (SI x 100) / (P x T), and time T = (SI x 100) / (P x R). If a lender charges ₹18,000 in interest on ₹1,20,000 over 2 years, the rate is (18,000 x 100) / (1,20,000 x 2) = 7.5% a year. This is a quick way to check the real rate behind an offer that only tells you the interest amount.
To see the size of the gap, compare the ₹2,50,000 at 9.5% for 3 years example. Simple interest gives a total of ₹3,21,250. Compounded once a year, the same rate gives 2,50,000 x 1.095^3, about ₹3,28,233, which is ₹6,983 more. Over 20 or 30 years the gap becomes far larger.
Some car, two-wheeler and consumer loans quote a "flat" rate. That is simple interest on the full loan amount for the whole tenure, even though you repay part of the principal every month. A ₹5,00,000 loan at a 9% flat rate for 5 years costs (5,00,000 x 9 x 5) / 100 = ₹2,25,000 in interest, or about ₹12,083 a month over 60 months. The same loan at 9% on a reducing balance costs about ₹1,22,751 in interest, with an EMI of about ₹10,379. A flat rate therefore looks lower than it really is. Ask the lender for the reducing-balance rate, or the annual percentage rate, before comparing offers, and use our EMI calculator for the reducing-balance figure.
