Simple Interest

What Is Simple Interest?

Simple interest is an interest charge that borrowers pay lenders for a loan. It is calculated using the principal only and does not include compounding interest. Simple interest relates not just to certain loans. It's also the type of interest that banks pay customers on their savings accounts.

The formula to determine simple interest is an easy one. Just multiply the loan's principal amount by the annual interest rate by the term of the loan in years.

Simple Interest Formula

The formula for simple interest helps you find the interest amount if the principal amount, rate of interest and time periods are given.

Simple interest formula is given as:

SI = PTR100

Where SI = simple interest

P = principal

R = interest rate (in percentage)

T = time duration (in years)

In order to calculate the total amount, the following formula is used:

Amount (A) = Principal (P) + Interest (I)

Where,

Amount (A) is the total money paid back at the end of the time period for which it was borrowed.

The total amount formula in case of simple interest can also be written as:

A = P(1 + RT)

Here,

A = Total amount after the given time period

P = Principal amount or the initial loan amount

R = Rate of interest (per annum)

T = Time (in years)

Calculate Total Amount Accrued (Principal + Interest), solve for A

A = P(1 + rt)

Calculate Principal Amount, solve for P

P = A / (1 + rt)

Calculate rate of interest in decimal, solve for r

r = (1/t)(A/P - 1)

Calculate rate of interest in percent

R = r * 100

Calculate time, solve for t

t = (1/r)(A/P - 1)