Simple Interest Calculator
Simple interest is charged only on the original amount. Enter the principal, rate and period to see the total.
Last updated
Simple interest
₹40,000
Total repayable: ₹1,40,000
- Principal
- ₹1,00,000
- Simple interest
- ₹40,000
- Total amount
- ₹1,40,000
For comparison, compounded yearly
- Compound interest
- ₹46,933
- DifferenceWhat compounding adds over the same period.
- ₹6,933
- Simple interest is used in some short-term loans, most gold loans against a fixed tenure, and many exam questions. Almost all bank deposits and retail loans compound instead.
How this calculator works
Simple interest is charged only on the original principal, no matter how long the money is borrowed or invested. The interest earned in year one does not earn anything in year two.
This makes it straightforward to calculate and easy to compare, which is why it appears in short-term lending, some gold loans, and in almost every school textbook. It is also why it is far less common in practice than compound interest: over any meaningful period, compounding produces substantially more.
The comparison shown alongside the result is deliberate. At 8% over five years, simple interest earns 40% of the principal while yearly compounding earns about 47%. Over twenty years the gap becomes enormous — 160% versus 366%.
If someone quotes you a "simple" rate on a loan, that generally works in your favour compared with the same rate compounded. If they quote it on a deposit, it works against you.
The formula
Simple interest
SI = P × R × T ÷ 100
- P
- Principal
- R
- Rate of interest per year, as a percentage
- T
- Time in years
Total amount
A = P + SI = P × (1 + R × T ÷ 100)
Worked example: ₹1 lakh at 8% for 5 years
Compare ₹1,00,000 at 8% for five years under simple and compound interest.
| Principal | ₹1,00,000 |
|---|---|
| Rate | 8% a year |
| Time | 5 years |
| Simple interest = 1,00,000 × 8 × 5 ÷ 100 | ₹40,000 |
| Total under simple interest | ₹1,40,000 |
| Compound interest, yearly | ₹46,933 |
| Difference | ₹6,933 |
Compounding adds ₹6,933 over five years on the same rate. Stretch the period to twenty years and simple interest yields ₹1,60,000 while yearly compounding yields ₹3,66,096 — more than twice as much.
Things worth knowing
- Almost all bank deposits and retail loans in India use compound interest, not simple. Do not assume simple interest unless the agreement says so explicitly.
- A "flat rate" quoted on a vehicle or consumer loan is a form of simple interest charged on the full original amount for the whole tenure, even though you repay in instalments. It is considerably more expensive than the same rate on a reducing balance.
- Simple interest for periods shorter than a year is usually computed on actual days, so the day-count convention in the agreement matters.
- Interest earned is taxable at your slab rate regardless of whether it is calculated simply or compounded.
Frequently asked questions
When is simple interest actually used?
Is simple interest better for a borrower?
How do I convert a flat rate to a reducing-balance rate?
Sources
Every figure on this page is traceable to the official source below. If a source has changed since the date shown, please tell us and we will correct it.
- Reserve Bank of India · Last verified 9 August 2026
Lending norms, the external benchmark framework and the policy repo rate.