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Simple Interest Calculator

साधारण ब्याज कैलकुलेटर

साधारण ब्याज (SI) की गणना करें। मूलधन, दर और समय से कुल राशि जानें।

Calculate Simple Interest

Simple interest is calculated only on the principal amount, unlike compound interest which calculates on principal + accumulated interest. Used primarily in short-term loans, fixed deposits, and some government schemes.

Formula: SI = (P × R × T) / 100, where P = Principal, R = Rate per annum, T = Time in years.

Simple Interest vs Compound Interest: Real Impact on ₹10 Lakh

Scenario: ₹10 Lakh Investment for 5 Years @ 8%

YearSimple Interest (Annual)SI TotalCompound Interest (Annual)CI Total
Year 1₹80,000₹10,80,000₹80,000₹10,80,000
Year 2₹80,000₹11,60,000₹86,400₹11,66,400
Year 3₹80,000₹12,40,000₹93,312₹12,59,712
Year 4₹80,000₹13,20,000₹1,00,777₹13,60,489
Year 5₹80,000₹14,00,000₹1,08,839₹14,69,328

Difference: ₹69,328 extra with compound interest! (17.3% more earnings)

Key Insight: As investor, always choose compound interest. As borrower, prefer simple interest (pay less!).

When Banks Use Simple Interest: Real Loan Examples

Case 1: Ramesh's Gold Loan (₹2 Lakh for 6 Months)

  • Loan Type: Gold loan @ 12% annual simple interest
  • Duration: 6 months
  • SI Calculation: (₹2,00,000 × 12 × 0.5) / 100 = ₹12,000
  • Repayment: ₹2,12,000 after 6 months
  • Why banks use SI for gold loans: Short tenure, bullet repayment (pay all at end)

Case 2: Priya's Personal Loan (₹5 Lakh for 3 Years)

Bank offers two options:

Loan TypeInterest MethodTotal InterestTotal Repayment
Flat Rate LoanSimple Interest (14%)₹2,10,000₹7,10,000
EMI LoanReducing Balance (14%)₹1,17,845₹6,17,845

Winner: EMI (Reducing Balance) saves ₹92,155! Never take "Flat Rate" personal loans.

Fixed Deposit Strategy: Simple vs Compound Interest

FD Type 1: Cumulative FD (Compound Interest)

  • ₹5 lakh for 3 years @ 7% compounded quarterly
  • Maturity: ₹6,16,438
  • Interest earned: ₹1,16,438
  • Best for: Lumpsum goal after 3years (child education, down payment)

FD Type 2: Non-Cumulative FD (Simple Interest Payout)

  • ₹5 lakh for 3 years @ 7% simple interest
  • Annual payout: ₹35,000 per year = ₹1,05,000 total over 3 years
  • Principal returned: ₹5,00,000
  • Best for: Senior citizens needing regular income

Strategic Mix for Senior Citizens:

  • 60% in Non-Cumulative FD (monthly/quarterly income for expenses)
  • 40% in Cumulative FD (long-term savings, emergency corpus)

Common Simple Interest Mistakes in Real Life

Mistake 1: Confusing Flat Rate with Reducing Balance

Loan advertisement: "10% flat rate car loan"

  • Borrower thinks: 10% annual interest (reasonable!)
  • Reality: Effective interest = 18-19% (because flat rate = SI on full principal despite monthly repayments)
  • Better option: 14% reducing balance = Effective 14% only

Mistake 2: Not Considering Loan Tenure Impact

₹1 Lakh loan @ 12% SI:

  • 1 year: Interest = ₹12,000 (12% effective)
  • 5 years: Interest = ₹60,000 (12% nominal but 60% total!)

Mistake 3: Ignoring Prepayment Benefits with SI Loans

Gold loan of ₹2L @ 15% SI for 12 months = ₹30,000 interest. If you repay in 6 months instead:

  • Interest = (₹2,00,000 × 15 × 0.5) / 100 = ₹15,000
  • Savings: ₹15,000 (50% less interest!)

With SI loans, prepayment ALWAYS saves proportional interest—unlike some EMI loans with prepayment penalties.

Frequently Asked Questions

What is simple interest formula?
Simple Interest = (Principal × Rate × Time) / 100. Example: ₹10,000 at 12% per year for 2 years = (10,000 × 12 × 2) / 100 = ₹2,400. Total amount = Principal + Interest = ₹12,400.
What is the difference between simple and compound interest?
Simple interest calculates interest only on the original principal amount. Compound interest calculates interest on principal PLUS accumulated interest from previous periods. Compound interest always yields more than simple interest over the same period.
Do banks use simple interest?
Most banks use compound interest for savings accounts and FDs. Simple interest is used for some short-term personal loans, gold loans, and vehicle loans. For EMI-based loans, the effective calculation is neither simple nor compound but uses reducing balance method.
Which is better: simple or compound interest?
As an investor/depositor, compound interest is better—you earn more. As a borrower/loan taker, simple interest is better—you pay less. However, most modern banking uses compound interest for deposits and reducing balance for loans.

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