What is Simple Interest?

Simple interest is interest charged only on the original amount, never on accumulated interest. The formula is:

SI = P × R × T ÷ 100

Here, P is the principal, R is the yearly rate and T is the time in years. So ₹1 lakh at 8% for 5 years earns exactly ₹40,000: a flat ₹8,000 every year, because the interest itself never earns anything.

Where You Actually Meet Simple Interest

It appears in short personal lending and informal loans, in penalty and delayed-payment interest such as the 10% a year on late gratuity payments, in security deposits, and in bonds whose coupons are paid out rather than reinvested. Court-ordered and statutory interest is also typically simple. If you lend to a friend or relative, agreeing something like "1% a month, simple" keeps the arithmetic transparent for both sides, and this calculator settles the number instantly.

Watch Out for "Flat Rate" Loan Quotes

This is the most important practical use of this page. A flat rate charges interest on the full original principal for the whole tenure, even as you repay it. That makes a 10% flat loan far costlier than a 10% reducing-balance loan, because you keep paying interest on money you have already returned. A quick conversion: multiply the flat rate by 2n and divide by n plus 1, where n is the number of monthly instalments. A 10% flat, 36-month loan works out to about 19.5% on a reducing balance. If a seller resists quoting the reducing rate or the APR, that reluctance is itself information. You can always cross-check any quote with the EMI calculator.

Simple vs Compound Over Time

At 8%, ₹1 lakh earns ₹40,000 of simple interest in 5 years, against ₹46,933 with annual compounding. By year 20 the gap has widened to ₹1.6 lakh versus ₹3.66 lakh. Compounding wins by more every single year, which is why savings should compound. See the compound interest calculator for the full effect.

FAQs about Simple Interest Calculator

SI = P × R × T ÷ 100 — principal times annual rate times years. The total repayment is principal plus that interest; the interest never compounds.
Simple interest is computed on the original principal only; compound interest is recalculated on principal plus accumulated interest each period. Over long durations, compounding produces dramatically more.
A flat rate charges interest on the full original principal for the whole tenure even as you repay. A 10% flat 3-year loan costs about the same as an ~18% reducing-balance loan — always ask for the reducing-balance (diminishing) rate.
For informal lending, penalty interest, flat-rate quote comparisons, security deposits and any contract where interest is defined as simple. For deposits and standard loans, use the compound interest or EMI calculators.
Approximate with: reducing ≈ flat × 2n ÷ (n+1) for n monthly instalments — so 10% flat over 36 months ≈ 19.5% reducing. Ask the lender for the APR to confirm; regulation requires disclosing it in the Key Facts Statement.
Yes — interest you receive on personal lending is taxable as income from other sources at your slab rate, whether or not it was documented. Keeping a simple written note also protects both sides on the principal.