Simple Interest Formula

Simple interest is one of the methods of calculating the interest charged on loans, fixed deposit, and savings accounts. Simple interest is computed on the principal quantum on a daily, monthly or annually. Under this method, the principal amount remains unchanged during the complete loan tenure.

The simple interest formula is: 
(P x r x t) ÷ 100 
Where: 
P = Principal amount 
r = Rate of Interest 
t = Term of deposit or tenure of the loan in years 
It means that you are multiplying the principal quantum with the interest rate and the tenure of the loan/ deposit. Make sure you key in the tenure in years and not months. If you want to enter the tenure in months, then the simple interest formula will be as follows: 
(P x r x t) ÷ (100 x 12) 
If you want to find out the total amount, i.e. the maturity value of your deposit or the total loan amount payable to the lender, then use the simple interest rate formula mentioned below: 
FV = P x (1 + (r x t)) 
Here, FV means Future Value, P is principal amount, r is rate of interest and t is term. To get the interest payable/ receivable, subtract the principal amount from the future value.

Below is the simple interest formula example to understand how much you will have to pay on your loan using the simple interest formula. 
Let’s assume you borrowed a Personal Loan of Rs. 5 Lakhs from a lender based on simple interest. The applicable interest rate is 18% and the tenure is 3 years. In this case, the interest to be paid to the lender by you will be as following: 
(5,00,000 x 18 x 3) ÷ 100 = Rs. 2,70,000 
The interest to be paid over the tenure of 3 years will be Rs. 2.7 Lakhs. The total repayment amount you owe to the bank will be Rs. 7.7 Lakhs (i.e. Rs. 5 Lakhs + Rs. 2.7 Lakhs). The EMI would be around Rs. 21,389 on a monthly basis. 
You can use the simple interest EMI calculator to understand the example in a better way.

You can use the compound interest and simple interest formula to calculate the interest earned or paid. Following are some basic difference between simple interest and compound interest formula: