Simple interest formula
Simple interest is charged only on the original amount (the principal), never on interest already earned. It is used for many personal and informal loans, some car and gold loans, and short-term deposits.
SI = P × R × T ÷ 100 · Amount = P + SI
Here P is the principal, R is the rate per year in percent and T is the time in years. For months, T = months ÷ 12. For days, T = days ÷ 365.
Example
₹1,00,000 at 8% a year for 3 years: SI = 1,00,000 × 8 × 3 ÷ 100 = ₹24,000, so the total is ₹1,24,000. With yearly compound interest the same deposit would earn ₹25,971, which is ₹1,971 more.
Working backwards
- Principal: P = SI × 100 ÷ (R × T)
- Rate: R = SI × 100 ÷ (P × T)
- Time: T = SI × 100 ÷ (P × R)
“₹2 per hundred” rates (byaj)
Private lenders in India often quote interest as rupees per ₹100 per month, for example “2 rupaye saikda” or “₹2 per hundred”. That is 2% a month, which is 24% a year. Pick “₹ per ₹100 per month” in the calculator to use this style. Such rates are much higher than bank loan rates, so compare before you borrow.
Simple vs compound interest
| ₹1,00,000 at 10% a year | Simple interest | Compound interest (yearly) |
|---|---|---|
| 1 year | ₹10,000 | ₹10,000 |
| 5 years | ₹50,000 | ₹61,051 |
| 10 years | ₹1,00,000 | ₹1,59,374 |
| 20 years | ₹2,00,000 | ₹5,72,750 |
Simple interest grows in a straight line. Compound interest grows faster every year because interest also earns interest. For deposits and investments, use the Compound Interest Calculator, FD Calculator or RD Calculator.
Frequently asked questions
How do I calculate simple interest for months?
Divide the months by 12 to get years. ₹50,000 at 12% for 9 months = 50,000 × 12 × 0.75 ÷ 100 = ₹4,500.
How do I calculate simple interest for days?
Use T = days ÷ 365. ₹2,00,000 at 9% for 90 days = 2,00,000 × 9 × 90 ÷ (365 × 100) = ₹4,438. Some lenders divide by 360 instead, which gives slightly more interest.
What is ₹1.5 per hundred interest per year?
₹1.50 per ₹100 per month is 1.5% a month, or 18% a year. On ₹1 lakh that is ₹1,500 a month in interest.
Do banks use simple interest?
Savings accounts and most fixed deposits compound interest quarterly. Simple interest is used for some short-term deposits (under 6 months), FDs that pay out interest every month or quarter, and many personal, gold and informal loans.