Calculate simple interest on principal amount
Simple interest is calculated only on the original principal amount. Formula: SI = P × R × T / 100, where P is principal, R is annual rate, and T is time in years. Unlike compound interest, the interest doesn't earn additional interest.
Simple interest is used in car loans, short-term personal loans, some bonds, and savings accounts with simple interest terms. It's simpler to calculate and often used for loans with shorter durations or specific financial products.
Simple interest is calculated only on principal, while compound interest is calculated on principal plus accumulated interest. Over time, compound interest grows exponentially faster. A 10% rate on ₹10,000 for 5 years: SI = ₹5,000; CI ≈ ₹6,105.
Convert time to years: months ÷ 12 or days ÷ 365. For 6 months at 12%: SI = P × 12 × 0.5 / 100 = P × 6%. Banks may use 360 or 365 days per year depending on convention.
Simple interest benefits borrowers as they pay less total interest compared to compound interest loans of the same rate and term. Lenders prefer compound interest as they earn more. Always compare the total interest paid, not just the rate.
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