Simple Interest is interest charged only on the original principal — never on accumulated interest. Used for short-term loans and some savings products. Calculated as P × R × T / 100, where P is principal, R is annual rate, T is time in years.
What is Simple Interest Calculator?
Simple interest is the older, simpler cousin of compound interest. The interest each year is the same — calculated on the original principal — never building on past interest. So a ₹1 lakh deposit at 7% earns ₹7,000 every year, year after year, no matter how long it sits.
It is used for some specific products: car loans (in some countries), short-term personal loans, some bonds, and money lent informally. Most modern Indian banking products use compound interest instead, because the math is more favourable to the depositor (and the lender, depending on which side they are on).
Comparing simple to compound interest at the same rate over long periods shows how dramatic compounding is. ₹1 lakh at 8% over 30 years: simple interest gives ₹2.4 lakh; compounded annually it gives ₹10.06 lakh — over 4× more.
Simple interest formula
- P
- Principal—the original amount
- R
- Annual rate %—interest rate per year
- T
- Time—duration in years
How to use this calculator
Three inputs: principal, rate, time.
Enter principal
The starting amount.
Enter annual rate
As a yearly percentage (e.g., 7 for 7%).
Enter time in years
Use decimals for partial years (e.g., 2.5 for 30 months).
When simple interest applies
Short-term loans
Many short-term loans (under 1 year) use simple interest because compounding makes little difference.
Informal lending
Family or community loans often use simple interest for transparency.
Comparing with compound
Use this calculator alongside the Compound Interest Calculator to see the difference at the same inputs.
Common mistakes to avoid
Entering months in the time field
T is in years. For 18 months enter 1.5; for 90 days enter 0.25 (90/365 ≈ 0.2466 for exact day-count).
Assuming a bank FD uses simple interest
Indian bank FDs compound quarterly. A 7% FD actually yields 7.19% annually. Use the FD calculator for deposits; this one is for genuinely simple-interest products.
Comparing a flat-rate loan quote with a reducing-balance quote directly
They're different animals. Convert the flat rate to its effective reducing rate (roughly ×1.8 for typical tenures) before comparing loan offers.
Glossary
- Simple interest
- Interest on the original principal only; never on accumulated interest.
- Compound interest
- Interest on principal plus accumulated interest. Most modern products.
- Principal
- The original amount lent or deposited.