Loan / Deposit Details
Maturity Amount
principal + simple interest
Principal
₹0
Simple Interest
₹0
Simple vs Compound Interest
What is Simple Interest?
Simple interest is interest calculated only on the original principal for the entire loan or deposit period. The interest amount stays the same every year because it never gets added back to the principal.
This makes it predictable and easy to calculate — which is why it is used for many car loans, short-term personal loans, and informal lending between individuals. For borrowers it is cheaper than compound interest; for savers it grows money more slowly.
Quick rule
Total interest = yearly interest × number of years. The yearly interest never changes under simple interest.
Simple Interest Formula
Where P = principal, R = annual rate (%), and T = time in years. The maturity amount is A = P + SI.
Example: ₹1,00,000 at 8% for 5 years
SI = (1,00,000 × 8 × 5) ÷ 100 = ₹40,000
Maturity = 1,00,000 + 40,000 = ₹1,40,000
That's a flat ₹8,000 of interest every year.
More Worked Examples
Simple vs Compound — ₹1L at 10%
The gap widens dramatically over time as compound interest earns "interest on interest":
| After | Simple | Compound |
|---|---|---|
| 1 year | ₹1,10,000 | ₹1,10,000 |
| 5 years | ₹1,50,000 | ₹1,61,051 |
| 10 years | ₹2,00,000 | ₹2,59,374 |
| 20 years | ₹3,00,000 | ₹6,72,750 |
Compare with our Compound Interest Calculator.
Where Simple Interest is Used
- →Car & vehicle loans — many are quoted on a flat/simple-interest basis.
- →Short-term personal loans and gold loans with a fixed tenure.
- →Some bonds & deposits that pay out interest instead of reinvesting it.
- →Informal loans between family, friends, and small businesses.
Things to Keep in Mind
Flat rate ≠ reducing rate
A "flat" simple-interest loan can have a much higher effective cost than a reducing-balance EMI loan at the same quoted rate, because you keep paying interest on the full principal. For EMIs use our EMI Calculator.
Months & days
Convert the period into years before applying the formula — 9 months = 0.75 years, 18 months = 1.5 years, and so on.
For saving, prefer compounding
If you are investing rather than borrowing, a compounding product (FD, PPF, SIP) will almost always beat simple interest over the long run.
Frequently Asked Questions
Common questions about simple interest