What is simple interest?
Simple interest is interest charged or earned only on the original amount (the principal). The interest does not get added back to earn more interest, so it grows in a straight line: the same amount every year.
Simple interest formula
- P = principal
- R = annual interest rate (%)
- T = time in years (months ÷ 12)
Worked examples
| Principal | Rate | Time | Simple interest |
|---|---|---|---|
| ₹1,00,000 | 8% | 5 years | ₹40,000 |
| ₹50,000 | 12% | 3 years | ₹18,000 |
| ₹2,00,000 | 7.5% | 2.5 years (30 months) | ₹37,500 |
Simple vs compound interest
For ₹1,00,000 at 10% over 20 years, simple interest earns ₹2,00,000 while yearly compound interest earns ₹5,72,750. The longer the period, the bigger the gap. If you are investing, compounding works for you; if you are borrowing, a simple-interest loan costs less than a compound-interest one at the same rate.
See the difference for your own numbers with the compound interest calculator.
How to find other values
- Rate: R = SI × 100 ÷ (P × T)
- Time: T = SI × 100 ÷ (P × R)
- Principal: P = SI × 100 ÷ (R × T)
Taking a loan with a fixed monthly payment? Banks calculate those on a reducing balance, which is different from simple interest. Use the EMI calculator for the exact monthly instalment.
Frequently asked questions
What is the simple interest formula?
Simple interest (SI) = P × R × T ÷ 100, where P is the principal, R the annual interest rate in percent and T the time in years. The total amount is P + SI.
How do I calculate simple interest for months?
Convert the months into years by dividing by 12. For 18 months, T = 1.5. So ₹1,00,000 at 12% for 18 months earns ₹1,00,000 × 12 × 1.5 ÷ 100 = ₹18,000.
What is the difference between simple and compound interest?
Simple interest is paid only on the original principal. Compound interest is also paid on interest already earned, so it grows faster. For the same rate and time, compound interest is always equal to or higher than simple interest.
Where is simple interest used in India?
Simple interest is common for short-term personal loans between individuals, some car and gold loans, fixed deposits of less than six months, and interest paid out regularly (non-cumulative FDs, Senior Citizens Savings Scheme payouts).
Sources
Last updated 19 September 2026. Results are estimates for planning only and are not investment, tax or legal advice. See our disclaimer.