Must Knows

Quick and easy method to calculate simple interest

[ecis2016.org] We discss the method and importance of simple interest calculation in this article, using which, it would become easy to calculate the same

Simple interest

What is simple interest?

You are reading: Quick and easy method to calculate simple interest

Let’s begin from the basics and find out the meaning of simple interest. The method to calculate interest on the principal amount given at a particular rate of interest over the time-period is called simple interest. If you have taken loan on interest, the money you have borrowed is called the principal amount. Against this amount, you need to pay some interest to the lender, which is calculated using an interest calculator with rate of interest and time-period agreed upon. Unlike compound interest, in simple interest you don’t have to pay interest on the interest. So, in simple interest the principal amount remains the same unlike compound interest.

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What is simple interest calculator?

A simple interest calculator helps you calculate the interest taken on loans that is to be paid without compounding it. Using the simple interest calculator, you can find simple interest for any time frame be it a day, a month, or a few years. After the calculation, the simple interest calculator will show you the interest that has to be paid on the principal amount borrowed.

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Simple interest calculator formula

The formula for simple interest used by the interest calculator is A = P (1 + r*t) where A stands for the total amount that is principal amount and interest; P stands for principal amount; r stands for rate of interest and t stands for time-period. Note, the rate of interest and time should be mentioned in the same time units while calculating the simple interest. That means, they either have to be in months or years, while calculating simple interest using the interest calculator.

To find the amount of interest you need to apply another formula

Interest = A (total amount) – P (principal amount)

Let us understand the working of simple interest calculation:

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simple interest

simple interest

Source: thecalculatorsite.com

In the above example shown in the interest calculator, the principal amount is Rs 1,000, the interest rate is 2% yearly and the time-period is 2 years, thus the interest calculated is Rs 40.  

Interest calculator is useful for:

  • Anyone who has lent money on simple interest: If anyone has lent money, he can easily know the interest he would get with the help of an interest calculator when the borrower returns money.
  • Anyone who has borrowed money on simple interest: If anyone has borrowed money, he can easily know the interest he has to pay along with the principal at the time of returning the borrowed amount.
  • Interest on investments: Interest on some asset classes can be calculated using the simple interest calculator. For instance, the Government of India bonds pay simple interest on a semi-annual basis.

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Source: https://ecis2016.org
Category: Must Knows

Debora Berti

Università degli Studi di Firenze, IT

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