Simple Interest Calculator
Calculate the interest earned on your principal using the simple interest formula. Compare with compound interest to understand the difference.
Simple Interest
₹40,000.00
Total Amount
₹1,40,000
Formula with Your Values
vs Compound Interest
For the same principal, rate, and tenure, compound interest (annually) earns more:
Simple Interest
₹40,000.00
Compound Interest
₹46,932.81
How is Simple Interest Calculated?
Simple interest is calculated only on the original principal amount, not on accumulated interest:
- SI = Simple Interest
- P = Principal Amount
- R = Annual Interest Rate (%)
- T = Time in years
The total amount at maturity is: A = P + SI
Frequently Asked Questions
What is simple interest? ▼
Simple interest is a method of calculating interest where the interest is computed only on the original principal amount throughout the entire tenure. It does not take into account any interest earned in previous periods, making it straightforward to calculate.
When is simple interest used in India? ▼
Simple interest is commonly used for short-term personal loans, vehicle loans, and some government schemes. It is also used in certain savings instruments and for calculating interest on overdue payments. Most banks and NBFCs use compound interest for long-term products.
Why does compound interest earn more than simple interest? ▼
With compound interest, the interest earned in each period is added to the principal, so subsequent interest is calculated on a larger base. Over time, this "interest on interest" effect causes the total to grow exponentially, while simple interest grows linearly. The longer the tenure, the greater the gap between the two.
Is simple interest better for borrowers? ▼
Yes, from a borrower's perspective, simple interest loans are cheaper because you only pay interest on the original principal. With compound interest loans, unpaid interest gets added to the principal, increasing the amount on which future interest is charged. For investors, however, compound interest is preferable as it grows wealth faster.