Simple interest is the most basic form of interest calculation, used when interest is charged only on the original principal amount, without compounding — meaning the interest earned or paid stays the same every period, rather than growing on top of itself.
The formula is straightforward: Simple Interest = Principal × Rate × Time ÷ 100, where the rate is the annual interest rate and time is expressed in years. Simple interest is commonly used for shorter-term loans, some fixed-term instruments, and in various legal and penalty-interest contexts (such as certain interest calculations under tax law) where compounding is not applied.
This calculator gives you the interest amount and the total amount payable (principal plus interest) for any combination of principal, rate, and time period you enter.
Simple interest is calculated only on the original principal throughout the period, while compound interest is calculated on the principal plus any previously accumulated interest, causing the amount to grow faster over time.
Simple interest is used in some short-term loans, certain government schemes, and various statutory interest calculations, such as some penalty and interest provisions under tax and other laws.
Yes, just convert the time to a fraction of a year (for example, 6 months = 0.5 years) before entering it into the formula.
Complex tax situation? Talk to a CA →