Simple Interest Calculator

Quickly calculate simple interest for your loans or investments.

Interest Details

1,00,000
5.0 %
5 Years

Total Future Value

₹ 0

Total Simple Interest

₹ 0

Principal Amount

₹ 0

Year-wise Breakdown

Year Starting Balance Interest Earned Ending Balance

Understanding Simple Interest

Our Simple Interest Calculator helps you quickly estimate interest on loans or investments.

What is Simple Interest?

Simple interest is a quick and easy method of calculating the interest charge on a loan or investment. It is determined by multiplying the principal amount by the interest rate and the time period. Unlike compound interest, simple interest is only calculated on the original principal amount.

This means the interest earned (or paid) each period remains constant throughout the duration of the loan or investment, assuming the principal and rate do not change.


How Simple Interest is Calculated

The formula for simple interest is straightforward:

$$SI = P \times R \times T$$

Where:

  • $SI$ = Simple Interest
  • $P$ = Principal Amount (the original amount borrowed or invested)
  • $R$ = Annual Interest Rate (as a decimal)
  • $T$ = Time Period (in years)

To find the total future value (A), you add the simple interest to the principal:

$$A = P + SI$$

Or, by substituting the SI formula:

$$A = P (1 + RT)$$


Simple vs. Compound Interest

The main difference between simple and compound interest lies in how the interest is calculated:

  • Simple Interest:
    Interest is only calculated on the original principal amount. The interest earned does not become part of the principal for future interest calculations.
  • Compound Interest:
    Interest is calculated on the principal amount and also on the accumulated interest from previous periods ("interest on interest"). This leads to exponential growth over time.

For long-term investments, compound interest generally leads to significantly higher returns than simple interest due to its exponential nature.


Frequently Asked Questions

Simple interest is often used for short-term loans, such as personal loans, car loans (in some cases), or for simple deposits like certificate of deposits (CDs) where interest is paid out periodically rather than re-invested.

While simple interest is easy to calculate, it generally offers lower returns for long-term investments compared to compound interest, as it doesn't benefit from the "interest on interest" effect.

The longer the time period, the higher the simple interest earned or paid, assuming the principal and rate remain constant. This is a direct linear relationship.