What is the Simple Interest?
Simple interest (SI) is interest calculated only on the original principal — never on accumulated interest. Borrow ₹2 lakh at 12% simple interest and you owe exactly ₹24,000 per year, every year, no matter how long the loan runs.
You will meet simple interest in gold loans, informal/family lending, some vehicle and consumer loans quoted "flat", security deposits, court-ordered payments and short-term business credit. Knowing the SI math protects you: a "1% per month" informal loan is 12% a year — and a 5-year "flat rate" car loan at 8% flat is really about 14.1% on a reducing balance.
Formula & worked example
Worked example: ₹2,00,000 at 12% p.a. for 3 years → SI = 2,00,000 × 12 × 3 / 100 = ₹72,000; total repayable ₹2,72,000, or ₹2,000/month in interest. The same loan compounded yearly would cost ₹80,986 — ₹8,986 more — which is why lenders prefer compound and borrowers prefer simple.
Five worked examples, checked against this calculator
Each row below is the calculator's own output for those inputs. Time is always in years, so months and days are converted first.
| Situation | P | R (p.a.) | T | Simple interest | Total |
|---|---|---|---|---|---|
| Personal loan to a friend | ₹50,000 | 10% | 2 years | ₹10,000 | ₹60,000 |
| Informal loan at "1% a month" | ₹1,00,000 | 12% | 18 months (1.5) | ₹18,000 | ₹1,18,000 |
| Gold loan, bullet repayment | ₹1,50,000 | 9.5% | 6 months (0.5) | ₹7,125 | ₹1,57,125 |
| Short-term deposit | ₹25,000 | 8% | 90 days (90/365) | ₹493 | ₹25,493 |
| The default example above | ₹2,00,000 | 12% | 3 years | ₹72,000 | ₹2,72,000 |
SI for months: the 18-month loan step by step
18 months ÷ 12 = 1.5 years. SI = 1,00,000 × 12 × 1.5 / 100 = ₹18,000. Because simple interest is linear, the per-month figure is the same every month: ₹1,000.
SI for days: the 90-day example step by step
90 days ÷ 365 = 0.2466 years. SI = 25,000 × 8 × 0.2466 / 100 = ₹493. Most Indian lenders count actual days over a 365-day year; a lender using a 360-day year would charge slightly more (₹500 here), so check the agreement.
Finding P, R or T when you know the interest
Rearrange the same formula. These come up constantly in school maths and in real agreements where only the interest is quoted.
- Rate: ₹12,000 interest on ₹80,000 over 2 years → R = 12,000 × 100 / (80,000 × 2) = 7.5% p.a.
- Time: ₹9,000 interest on ₹60,000 at 10% → T = 9,000 × 100 / (60,000 × 10) = 1.5 years (18 months).
- Principal: ₹4,500 interest at 9% for 2 years → P = 4,500 × 100 / (9 × 2) = ₹25,000.
Put any of these answers back into the calculator above and you get the original interest figure — a quick way to check homework or a lender's quote.
Simple vs compound interest on the same ₹1 lakh
At 10% a year, the two methods are identical for the first year and then drift apart fast. Compound here means yearly compounding, as the last line of the calculator shows.
| Years | Simple interest | Compound interest (yearly) | Difference |
|---|---|---|---|
| 1 | ₹10,000 | ₹10,000 | ₹0 |
| 3 | ₹30,000 | ₹33,100 | ₹3,100 |
| 5 | ₹50,000 | ₹61,051 | ₹11,051 |
| 10 | ₹1,00,000 | ₹1,59,374 | ₹59,374 |
That gap is why a borrower should prefer simple interest and a saver should prefer compounding. For the compounding side, use the compound interest calculator; to see the two side by side for any inputs, the simple vs compound calculator.
Flat-rate loans: simple interest in disguise
A "flat" rate is simple interest charged on the full loan for the full tenure, even though you repay part of it every month. A ₹5,00,000 car loan at 8% flat for 5 years costs ₹2,00,000 in interest — exactly what this SI calculator shows for P = ₹5,00,000, R = 8, T = 5 — giving an EMI of ₹11,667. The same EMI on a normal reducing-balance loan corresponds to a rate of about 14.1%. Run your own quote through the flat vs reducing rate calculator before signing.
Where simple interest shows up in India
- Income tax interest: Sections 234A, 234B and 234C charge 1% per month (simple) on unpaid tax, and a delayed refund earns 0.5% per month under Section 244A. A ₹40,000 advance-tax shortfall for 4 months costs 40,000 × 1% × 4 = ₹1,600 — enter P = ₹40,000, R = 12, T = 0.3333 (4 ÷ 12) to confirm.
- Gold loans: many lenders quote an annual rate and let you repay principal plus interest at the end (a "bullet" loan). The interest for the period is simple interest on the amount outstanding.
- Informal lending: a quote of "₹2 per ₹100 per month" is 24% a year. Convert to an annual rate before comparing with a bank.
- Flat-rate vehicle and consumer loans, as above.
- Security deposits, court awards and delayed payments, which are usually stated as simple interest per annum.
How to use this simple interest calculator
- Enter the principal, annual rate and time in years (use 0.5 for 6 months via the input box).
- Read the interest, the total payable and the effective monthly cost.
- The last line shows what compounding would cost instead — useful when negotiating loan terms.
Smart tips
- Convert monthly rates before comparing: "2% per month" is 24% per year — higher than most personal loans.
- For flat-rate vehicle loans, the true reducing-balance rate is roughly 1.8× the flat rate. Ask for the APR.
- Put every informal loan in writing with rate, tenure and repayment schedule — this calculator gives you the numbers for the agreement.
- If you lend to friends or family, even a modest 8–10% simple interest keeps the arrangement fair versus your FD alternative.
- For deposits, always prefer compound products — simple interest is for short, fixed obligations, not for growing savings.
Frequently asked questions
Where is simple interest used in real life?
Gold loans, informal personal lending, "flat-rate" vehicle/consumer loans, security deposits, delayed-payment penalties and many court awards. Banks use compound (reducing-balance) interest for regular loans and deposits.
What is the difference between flat rate and reducing rate?
A flat rate charges simple interest on the full original amount for the whole tenure even as you repay monthly, so the effective cost is much higher — an 8% flat car loan equals roughly 14–15% reducing. Always compare loans on the reducing/APR basis.
How do I calculate simple interest for months or days?
Convert time to years: 8 months = 8/12 = 0.667 years; 90 days = 90/365. Type the decimal directly into the years box — the sliders snap to whole years, the input accepts decimals.
Is simple or compound interest better?
As a borrower, simple is cheaper; as a saver, compound is better. That single asymmetry is most of personal finance.
What monthly rate equals 12% yearly simple interest?
Exactly 1% per month (12 ÷ 12). Simple interest scales linearly, so per-month and per-year quotes convert by plain division — unlike compound rates.
What is the formula for amount in simple interest?
Amount A = P + SI = P × (1 + R × T / 100). For ₹50,000 at 10% for 2 years, A = 50,000 × 1.2 = ₹60,000.
How do I calculate SI for 6 months?
Use T = 0.5. For ₹1,50,000 at 9.5%, SI = 1,50,000 × 9.5 × 0.5 / 100 = ₹7,125. Within the first year, simple and yearly-compounded interest give the same answer.
How do I find the rate if I know the interest?
R = SI × 100 / (P × T). ₹12,000 interest on ₹80,000 over 2 years is 12,000 × 100 / 1,60,000 = 7.5% a year.
Is SI the same as simple interest?
Yes. SI is the standard abbreviation in Indian school maths and banking for simple interest, and this SI calculator uses the textbook formula SI = P × R × T / 100.
Want the theory behind the numbers? Read our money basics guides on the Money Blog.