Simple Interest is a quick and easy method for calculating the Interest Charged on a Loan or Principal Amount. The Concept of Simple Interest is quite famous and is used in many sectors such as finance, automobile, and banking. Go through the further modules to know about What is Simple Interest, Formula to Calculate Simple Interest, Solved Examples on How to Calculate the Simple Interest.
What is Simple Interest?
Simple Interest is the method for calculating the Interest Amount on a Certain Amount of Sum. SI is obtained by multiplying the interest rate, principal, time duration that elapses between payments. In general, it is calculated on a daily, monthly or annual basis.
In real times, money is not borrowed or lent for free. While repaying the amount you borrowed you need to pay a certain amount of interest along with the amount you have taken. In fact, the amount of interest you repay depends on the loan amount as well as the time for which you borrow and the rate of interest.
Simple Interest Formula
You need to be familiar with the Simple Interest Formula in order to understand the concept of Finances. The formula for Simple Interest helps you find the interest amount if principal, rate of interest, and time duration are given.
Formula to Calculate Simple Interest is SI = (P × R ×T) / 100
Where, P = Principal
R = Rate of Interest (in percentage)
T = Time Duration (in years)
However, the formula to find the Amount is given by Amount (A) = Principal (P) + Interest (I).
The amount is the total money you pay back at the end of the time you borrowed.
Simple Interest Formula for Months
The Formula to find Simple Interest for Months varies slightly compared to a yearly basis. Let us consider the Principal Amount be P and Rate of Interest per Annum be R and n be the time duration in months then the formula to Calculate SI is as such
Simple Interest for n months = (P × n × R)/ (12 ×100)
Solved Examples on Simple Interest
1. Raju takes a loan of Rs 20,000 from a bank for a period of 2 years. The rate of interest is 5% per annum. Find the interest and the amount he has to pay by the end of 2 years?
Solution:
Principal or Loan Sum = 20, 000
Time Duration T = 2 Yrs
Rate of Interest R = 5%
Formula to Calculate the Simple Interest = (P × R ×T) / 100
= (20,000*5*2)/100
= 200000/100
= 2000
Amount to be repeated by the end of the year = Principal + Interest
= 20, 000+2000
= 22, 000
Therefore, Raju needs to repay a total of Rs. 22, 000/- after the end of 2 years.
2. Mohan pays Rs 13000 as an amount on the sum of Rs 10000 that he had borrowed for 3 years. Find the rate of interest?
Solution:
Amount = 13, 000
Principal = 10,000
SI = Amount – Principal
= 13, 000 – 10, 000
= 3, 000
Time Duration = 3 yrs
Rate of Interest R = ?
SI = (P × R ×T) / 100
3, 000 =(10, 000*R*3)/100
R = (3000*100)/(10,000*3)
= 300000/30000
= 10%
Therefore, Rate of Interest is 10%.
3. Neela borrowed Rs 40,000 for 2 years at a rate of 4% per annum. Find the interest accumulated at the end of 2 years?
Solution:
P = Rs 40,000
R = 4%
T = 2 years
SI = (P × R ×T) / 100
= (40, 000*4*2)/100
= 3200
Interest accumulated at the end of 2 years is Rs. 3,200/-