Total Interest
₹ 30,000
Principal Amount
₹ 100,000
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Simple interest is a basic calculation used in many lending situations. Calculating simple interest accurately can help you make better financial decisions when taking or issuing loans. In this guide, we'll cover everything you need to know about simple interest loans and how to calculate simple interest with example
Simple interest is a straightforward method of calculating the interest charged on a loan. It applies a fixed interest rate to the principal amount for the entire loan term.
Simple interest is determined by multiplying the loan principal by the interest rate and the length of the loan term. The formula is
Interest = Principal x Rate x Time
Where:
The main advantage of simple interest loans is that the interest charge remains constant over the full term of the loan. This makes it easy to calculate the total interest costs upfront.
A simple interest EMI calculator is an online tool or mobile app that lets you quickly determine interest charges on loans using the simple interest method.
These calculators allow you to input the principal amount, interest rate, and loan term. It then automatically calculates and displays the total interest owed. Many also calculate the total repayment amount (principal + interest).
Simple interest calculators provide a quick and convenient way to estimate interest and loan costs. They can be easily found online with just a simple search. Many financial websites and banks also offer their own simple interest EMI calculator tools.
Additionally, some will allow you to amend the inputs to see how changing the loan amount, interest rate or term impacts your total interest costs. This makes them valuable tools for comparing loan scenarios.
Simple interest calculators use the simple interest formula explained below:
Interest = Principal x Rate x Time
The calculator takes the inputs entered - principal amount, interest rate, and loan term - and plugs them into the formula to determine the interest charge.
Here is a breakdown of how it calculates:
The final result displayed is the total interest payable over the full loan term based on the inputs. Advanced simple interest calculators may also calculate the total repayment amount (principal + interest) and other loan specifics. But the general working remains the same - determining interest by applying principal, rate and time to the simple interest formula.
IIFL provides a user-friendly simple interest loan calculator on its website that can be used to calculate interest for various lending needs.
Here are the steps to use it:
The total interest and repayment amount will be displayed. You can tweak the inputs and click calculate again to view different scenarios. This allows easy comparison of interest costs. The calculator also displays detailed amortization schedules showing the breakup of principal/interest for each repayment period.
You can use the IIFL simple interest rate calculator for personal lending needs, business/commercial loans gold loans, two-wheeler loans and more. To get a quick estimate without having to do complex math, you can calculate simple interest online using online calculators.
If you need to calculate simple interest manually, follow these steps:
1. Identify the principal loan amount. This is the amount borrowed or deposited.
2. Identify the annual interest rate as a percentage.
Calculate the interest rate per period:
Let's understand this with an example:
Here is an explanation of how to calculate simple interest using an example:
Calculating simple interest is quite straightforward using the simple interest formula:
Simple Interest = Principal x Interest Rate x Time
Let's understand this with an example:
Suppose you take a loan of Rs. 50,000 for 3 years at an annual interest rate of 8%.
To calculate the total simple interest amount payable, we just need to plug the values into the formula:
Principal = Rs. 50,000
Interest Rate (Annual) = 8%
Time Period = 3 years
Simple Interest = Principal x Interest Rate x Time
= 50,000 x 0.08 x 3
= 50,000 x (8/100) x 3
= Rs. 12,000
So if you borrowed Rs. 50,000 at 8% annual interest for 3 years, the total simple interest totes Rs. 12,000. This means that over the full 3 year period, you will pay back:
Principal amount = Rs. 50,000
+ Total simple interest = Rs. 12,000
Total repayment = Rs. 62,000
Simple interest calculators have many useful applications:
Overall, simple interest calculators allow lenders and borrowers to estimate loan interest charges for better financial decisions.
Some key benefits of using simple interest rate calculator:
Using a calculator makes applying the simple interest formula quick, easy and mistake-proof.
Simple interest is commonly used in various short-term lending situations:
Simple interest is preferred for short-duration loans as the interest amount does not compound over time. This helps keep overall interest costs low compared to compound interest loans. Moreover, you can calculate simple interest online using digital tools.
Simple interest charges only on the principal amount. Compound interest charges interest on the principal AND previously accumulated interest.
No, you need a specialized compound interest calculator for that. Simple interest loan EMI calculator can only calculate simple interest.
APR factors in all costs like origination fees. Simple interest only considers principal, interest rate and period.
Yes, many financial apps and loan apps have built-in simple interest loan EMI calculator. Popular options include Bankrate, Cashboard, Simpl and ZestMoney.
Yes, most calculators allow editing inputs to model different scenarios for decision making.
No, both are taxed the same way as interest income for lenders and interest expense for borrowers.
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ATTENTION INVESTORS
www.indiainfoline.com is part of the IIFL Group, a leading financial services player and a diversified NBFC. The site provides comprehensive and real time information on Indian corporates, sectors, financial markets and economy. On the site we feature industry and political leaders, entrepreneurs, and trend setters. The research, personal finance and market tutorial sections are widely followed by students, academia, corporates and investors among others.
Risk Disclosure on Derivatives
Copyright © IIFL Securities Ltd. All rights Reserved.
Stock Broker SEBI Regn. No: INZ000164132, PMS SEBI Regn. No: INP000002213, IA SEBI Regn. No: INA000000623, SEBI RA Regn. No: INH000000248
We are ISO 27001:2013 Certified.
This certificate demonstrates that IIFL as an organization has defined and put in place best-practice information security processes.