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Enter principal, rate and time to get simple interest and the final amount instantly.
Simple interest is calculated as SI = P × R × T ÷ 100, where P is the principal, R is the annual rate and T is the time in years. The interest is charged on the original principal only — it never compounds.
Worked example: ₹50,000 at 7% for 5 years → SI = 50,000 × 7 × 5 ÷ 100 = ₹17,500. You get back ₹67,500 in total, which is about ₹292 of interest per month.
The same money at compound interest would grow to ₹70,128 — that gap is why banks love quoting simple interest on some products and compound on others.
Gold loans and short-term personal loans commonly use simple interest.
Some fixed deposits and small-savings schemes quote simple interest, especially for short tenures.
Car loans advertised as “flat rate” charge simple interest on the full principal for the entire tenure — a 10% flat rate costs roughly as much as an 18–19% reducing-balance rate. Always ask which method a loan uses before comparing.
Simple interest is calculated only on the original principal, every year, forever. Compound interest is calculated on principal plus all accumulated interest. On 1,00,000 rupees at 8%, the difference starts small and ends enormous:
| Period | Simple interest | Compound (annual) |
|---|---|---|
| 1 year | 8,000 | 8,000 |
| 3 years | 24,000 | 25,971 |
| 5 years | 40,000 | 46,933 |
| 10 years | 80,000 | 1,15,892 |
| 20 years | 1,60,000 | 3,66,095 |
Simple interest still has real uses: short-term consumer finance, some vehicle and gold loans, delayed-payment interest charged by the tax department under sections like 234A/234B, and bond coupons are typically simple.
The formula is SI = P x R x T / 100 — principal times annual rate times years, divided by 100. The classic exam trap is time units: if a loan runs 8 months, T is 8/12, not 8. Another is day-count conventions; where exact days matter (some bank products use 365 days, others 360), verify the instrument's terms before quoting a figure.
Fraud-awareness tip: if an investment promises simple-interest-like linear returns over decades, it is almost certainly not how markets work — genuine compounding curves upward. Flat-rate loans quoted at simple interest also hide a much higher effective cost, because you keep paying interest on money you have already repaid. Always convert to reducing-balance before comparing.
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