Simple Interest Calculator
Calculate your returns on savings or interest costs on loans instantly.
Understanding Simple Interest: A Smart Financial Guide
Whether you are planning to grow your wealth through a fixed deposit or calculating the cost of a personal loan, the concept of Simple Interest (SI) is the foundation of personal finance. Unlike compound interest, which calculates interest on interest, Simple Interest is calculated only on the principal amount. This makes it a straightforward and predictable way to forecast your financial outcomes.
The Simple Interest Formula Explained
The universal formula used by banks and financial institutions is:
SI = (P × R × T) / 100
- P (Principal): The original sum of money borrowed or invested.
- R (Rate): The annual percentage rate of interest.
- T (Time): The duration for which the money is borrowed or invested (in years).
*Fig 1. Growth Visualization: Principal vs Total Return*
Simple Interest vs. Compound Interest
The key difference lies in growth speed. Simple Interest remains constant throughout the tenure because it is calculated on the original principal. Compound Interest, however, accelerates over time because the interest earned is added back to the principal. Simple Interest is typically used for short-term loans (like car loans), while Compound Interest is standard for long-term investments.
Using This Calculator for Loans
When you take a loan, the “Principal” is the amount you borrow. The calculator helps you determine the Total Interest Payable over the loan tenure. Knowing this figure helps you decide if the loan is affordable or if you should negotiate for a lower interest rate.
Using This Calculator for Savings
For investments like Fixed Deposits (FDs) or bonds that pay out interest regularly (non-cumulative), this calculator shows you exactly how much passive income you will generate. By adjusting the “Time” field, you can see how patience pays off in the long run.
Frequently Asked Questions
The formula is SI = (P × R × T) / 100, where P is the Principal amount, R is the annual Rate of interest, and T is the Time in years. To find the total amount payable/receivable, simply add the SI to the Principal (A = P + SI).
This calculator assumes the time is in years. If you have a duration in months, divide the number of months by 12 to get the years (e.g., 6 months = 0.5 years) and enter that value in the “Time” field.
Simple interest calculates the cost of borrowing based solely on the principal. APR (Annual Percentage Rate) is broader; it includes the interest rate plus other costs like broker fees, closing costs, and discount points, expressed as a yearly percentage.
Generally, mortgages use an amortization schedule which involves compound interest logic. However, this calculator can give you a rough estimate of the total interest cost if the loan were strictly simple interest, but it won’t be 100% accurate for standard home loans.
Standard Simple Interest is usually calculated on a per-annum (yearly) basis. However, some banks may accrue it daily based on the outstanding principal divided by 365. This tool provides the total interest for the full term based on an annual rate.