Simple Interest Calculator
Compute simple (non-compounding) interest on a principal.
- Principal
- Value
- Principal
- ₹1.00L
- Interest earned
- ₹40.00K
Simple interest — assumes a constant 8% annual rate applied to the original principal only (no compounding).
Independent · No commissions · No fund-house data — how the numbers are computed
How it works
Simple interest is interest computed only on the original principal — the interest earned never itself earns interest. It is the arithmetic behind many everyday agreements: informal and personal lending, some gold loans and short-term financing, security deposits, court-awarded interest, and penalty or delayed-payment clauses are all commonly quoted at simple interest.
This calculator applies a constant annual rate (defaulting to 8%, fully editable) to a principal over a tenure in years, and shows the interest earned and the final amount. The growth is a straight line: the same rupee amount of interest accrues every year, unlike compound interest, where each year's interest is larger than the last.
The gap between simple and compound interest is small over a year or two and enormous over decades — which is precisely why deposits, loans and investments almost all compound, and why quoting a simple rate for a multi-year product usually understates what a compounding product would deliver over the same period.
SI = P × r × t; A = P × (1 + r × t)P is the principal, r the annual rate as a decimal, t the time in years. SI is the total interest, and A the final amount. Interest is charged on P alone every year — nothing earned along the way is reinvested.
Frequently asked questions
What is the difference between simple and compound interest?
Simple interest is calculated only on the original principal, so the same amount accrues every period. Compound interest is calculated on the principal plus all interest already accumulated, so each period's interest is larger than the last. ₹1 lakh at 8% for 10 years earns ₹80,000 at simple interest, but about ₹1.16 lakh compounded annually — and the gap widens every additional year.
Where is simple interest actually used?
Mostly in short-term and legal contexts: personal and informal lending, some gold loans and vehicle-financing quotes, interest on security deposits, court-awarded interest on claims, and penalty interest on delayed payments (income-tax interest under sections 234A/B/C is computed as simple interest per month). Bank deposits, bonds and most formal loans compound instead.
How do I calculate simple interest for months or days?
Convert the time to years and use the same formula. For months, t = months ÷ 12; for days, t = days ÷ 365. For example, ₹50,000 at 12% a year for 8 months is 50,000 × 0.12 × (8/12) = ₹4,000. In this calculator, express a part-year tenure as a fraction if needed — the formula SI = P × r × t is linear in time, so any consistent conversion works.
Does simple interest ever beat compound interest?
At the same rate and for periods of a year or longer, never — compounding adds interest-on-interest that simple interest lacks, and at exactly one year they are equal. For borrowers the preference flips: a loan charged simple interest costs less than the same loan compounding. That is why 'flat rate' loan quotes, which resemble simple interest on the original principal, can hide a much higher effective reducing-balance rate.
Go further
The same inputs with interest-on-interest switched on.
What the simple-versus-compound gap grows into over decades.
Where a simple-interest-style 'flat rate' quote hides a higher true cost.
How formal loans actually charge — reducing-balance, not simple, interest.