The formula
Simple interest = P × R × T ÷ 100
P is the principal, R the yearly rate in percent and T the time in years. Total amount = P + SI.
On ₹1,00,000 at 8% for 3 years: 1,00,000 × 8 × 3 ÷ 100 = ₹24,000. You get back ₹1,24,000.
Interest per month
Monthly interest = P × R ÷ 1200. On ₹1 lakh at 12% a year, that is ₹1,000 a month. Rates quoted as “2 rupees per hundred per month” (common in informal lending) are 24% a year.
Where simple interest is used
- Payouts from FDs, POMIS and SCSS where interest is paid out and not reinvested.
- Short-term personal lending between people, and some gold loans.
- Car loans from some lenders quote a “flat rate”, which is simple interest on the full amount. A 7% flat rate over 5 years works out to roughly 12.5% on a reducing balance, so compare using the EMI calculator.
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Questions people ask
What is the difference between simple and compound interest?
Simple interest is earned only on the original amount. Compound interest is also earned on interest already added, so it grows faster over time.
How do I calculate simple interest for months?
Use T in years: 6 months is 0.5. Or multiply the monthly interest (P × R ÷ 1200) by the number of months.