Simple Interest Calculator

Simple interest is interest calculated only on the original principal amount. Unlike compound interest, it doesn't earn interest on previously earned interest. The formula is straightforward: SI = (P × R × T) / 100, where P is principal, R is annual interest rate as a percentage, and T is time in years.

The result is linear growth. If you invest ₹1,00,000 at 8% simple interest, you earn ₹8,000 every single year — regardless of how many years pass. After 5 years you have ₹1,40,000; after 10 years, ₹1,80,000; after 20 years, ₹2,60,000. The principal never grows, so the annual interest never grows either.

Simple interest is less common than compound interest in modern finance, but it still applies in specific situations: short-term loans, some car loans, treasury bills, and certain government schemes. Understanding it is foundational — most other interest concepts build on this.

**Short-term loans:** Personal loans under 1 year, payday loans, and many informal loans use simple interest. A ₹50,000 loan for 6 months at 12% simple interest costs ₹3,000 in interest — clean, no compounding.

**Car loans (sometimes):** Some car loans use simple interest methodology, especially those marketed as 'flat rate' loans. Be careful — a 7% flat-rate car loan is effectively 13–14% reducing balance interest. Always ask for the reducing balance equivalent.

**Treasury bills and some government securities:** T-bills are issued at a discount and mature at face value. The difference is effectively simple interest. Similarly, some government savings schemes use simple interest calculations.

**Educational examples:** Nearly every personal finance course starts with simple interest because it's intuitive. Once that's mastered, students move to compound interest — which is what most savings and investment products use.

For short periods (1–3 years) and modest rates, simple and compound interest produce similar results. The difference grows exponentially with time. For a ₹1,00,000 investment at 10% annual rate: 5 years → SI ₹1,50,000 vs CI ₹1,61,051 (₹11,051 difference). 10 years → SI ₹2,00,000 vs CI ₹2,59,374 (₹59,374 difference). 20 years → SI ₹3,00,000 vs CI ₹6,72,750 (₹3.72 lakh difference).

This is why time is the most important variable in any long-term investment. Simple interest grows linearly. Compound interest grows exponentially. Over long horizons, compound interest pulls away dramatically — and over very long horizons, the difference becomes overwhelming.

For loans, the same logic applies but in reverse. A 20-year home loan at 8.5% simple interest would cost roughly half the total interest of the same loan under compound interest (which is what banks actually charge). The 'interest cost' you see on any loan illustration is almost always compound interest — sometimes called 'reducing balance' interest.