Simple Interest Formula

Simple Interest Formula

Simple interest is a way to figure out how much interest will be charged on a sum of money at a specific rate and for a specific duration of time. Contrary to compound interest, where the interest of one year’s principal is added to the next year’s principal to compute interest, the principal amount under simple interest remains constant. Students will learn about the concept of borrowing money in this chapter, as well as how borrowing results in the Simple Interest Formula. Additionally, words like principal, quantity, rate of interest, and time period will be presented to the students. They can compute simple interest using these terms and the Simple Interest Formula.

What is Simple Interest?

Simple interest is a quick and simple approach to figure out how much money has accrued interest. Interest is always applied to the original principal amount and is calculated at the same rate for each period of time. Any bank where a person deposits money will pay him/her interest on that amount. Simple interest is one of many forms of interest that banks charge. A loan is a sum of money that someone borrows from a bank or other financial institution to cover expenses. Home loans, auto loans, student loans, and personal loans are a few instances of loans. A loan amount must be promptly repaid to the authorities together with an additional sum, often the interest you paid on the loan.

Simple Interest Formula

S.I. = P × R × T, where P = Principal, R = Rate of Interest in% per annum, and T = Time, typically calculated as the number of years, is the Simple Interest Formula. The interest rate is expressed as r/100 and is expressed as a percentage, or r%.

Principal: The principal is the sum that was first invested or borrowed from the bank. P stands for the principal.

Rate: Rate is the interest rate at which the principal sum is granted to someone for a specific period of time; examples of rate interest are 5%, 10%, and 13%. R stands for the interest rate.

Time: The amount of time that the principal is given to someone. T represents time.

Amount: When a borrower repays a bank loan, the term “Amount” refers to the sum of the principal borrowed plus the interest paid.

Sum equals Principal plus Simple Interest.

A = P + S.I.

A = P + PRT

A = P(1 + RT)

Simple Interest Example:

The Extramarks website, which contains the Simple Interest Formula examples, allows students to master all the fundamentals. Additionally, Extramarks provides professors who are authorities in their field; as a result, students can ask professionals their questions. For students, Extramarks provides worksheets with solved examples of the Simple Interest Formula to help them in their areas of weakness, so they can strengthen them and get great exam results. Students who are hesitant to ask teachers questions in front of their peers can get support and assistance through Extramarks.

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What Types of Loans use Simple Interest?

Most banks utilise compound interest on loans since it increases the amount of money they get in interest from their clients, but this approach is more complicated and challenging to explain to clients. On the other hand, when banks use straightforward interest methods, computations become simple. When a customer needs a loan for a brief time, such as one month, two months, or six months, simple interest is quite helpful. Simple interest loans are short-term loans where the interest is calculated daily or weekly rather than annually.

If you borrowed $10,000 with simple interest at a 10% annual interest rate, the daily interest rate would be equal to 10% x 365, or 0.027%. So, on top of $10,000, you must pay $2.73 more per day.

Simple Interest vs Compound Interest

There are two techniques to figure out the interest on a loan amount: simple interest and compound interest. Compound interest is thought to be more challenging to compute than simple interest due to several fundamental distinctions between the two.

Every time, simple interest is computed on the initial principle sum. The total of principal and interest is used to compute compound interest.

This Simple Interest Formula is: S.I.= P × R × T This formula is used to compute it: C.I. =  P × (1+r)t – P

Every year on a specific principle, simple interest is equal. Since the compound interest is based on amount rather than principal, it varies for every time period.

Solved Examples on Simple Interest

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Practice Questions on Simple Interest

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