The Simple Interest Calculator calculates the interest and end balance using the simple interest formula. Click the tabs to calculate the different parameters of the simple interest formula. In real life, most interest calculations involve compound Interest. To calculate compound interest, use the Interest Calculator.

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**What is Simple Interest, A = P (1+rt)**

The interest rate associated with borrowing or lending money is simple interest. When a borrower receives funds from a lender, an additional sum is repaid to the lender. The initial amount borrowed, provided for a specified duration, is known as the principal. The additional amount paid to the lender for utilizing the borrowed money is termed as the interest.

To compute simple interest, you multiply the principal amount by the number of periods and the interest rate. Unlike compound interest, simple interest doesn’t accumulate over time, and you’re not required to pay interest on top of previously accrued interest. With simple interest, the payment primarily covers the interest for the given period, and any remaining portion of the payment contributes to decreasing the principal amount.

**What is a Simple Interest Calculator?**

A simple interest calculator is a convenient tool used to compute interest for loans or savings without taking compounding into account. This calculator can determine the simple interest accrued on the principal amount, calculated daily, monthly, or annually. The calculator typically features a formula input section where you input the principal amount, annual interest rate, and time period specified in days, months, or years. Once entered, the calculator provides the calculated interest for the loan or investment.

## Simple Interest Formula

The basic simple interest formula looks like this:

Simple Interest = Principal Amount × Interest Rate × Time

Our calculator will compute any of these variables given the other inputs.

### Simple Interest Calculated Using Years

You may also see the simple interest formula written as:

**I = Prt**

**In this formula:**

- I = Total simple interest
- P = Principal amount or the original balance
- r = Annual interest rate
- t = Loan term in years

Under this formula, you can manipulate “t” to calculate interest according to the actual period. For instance, if you wanted to calculate interest over six months, your “t” value would equal 0.5.

### Simple Interest for Different Frequencies

You may also see the simple interest formula written as:

**I = Prn**

In this formula:

- I = total interest
- P = Principal amount
- r = interest rate per period
- n = number of periods

Under this formula, you can calculate simple interest taken over different frequencies, like daily or monthly. For instance, if you wanted to calculate monthly interest taken every month, then you would input the monthly interest rate as “r” and multiply by the “n” number of periods.

### Simple Interest Examples

Let’s review a quick example of both I=Prt and I=Prn.

**I = Prt**

For example, let’s say you take out a $10,000 loan at 5% annual simple interest to repay over five years. You want to know your total interest payment for the entire loan.

First, you’d multiply your principal by your annual interest rate, or $10,000 × 0.05 = $500.

Then, you’d multiply this value by the number of years on the loan, or $500 × 5 = $2,500.

Now that you know your total interest, you can use this value to determine your total loan repayment required. ($10,000 + $2,500 = $12,500.) You can also divide the value to determine how much interest you’d pay daily or monthly.

**I = Prn**

Alternatively, you can use the simple interest formula I=Prn if you have the interest rate per month.

If you had a monthly rate of 5% and you’d like to calculate the interest for one year, your total interest would be $10,000 × 0.05 × 12 = $6,000. The total loan repayment required would be $10,000 + $6,000 = $16,000.

**How Do Simple Interest Calculators Work?**

The simple interest calculator will show the accrued amount, including both principal and interest. The simple interest calculator works on the mathematical formula:

A = P (1+rt)

P = Principal Amount

R = Rate of interest

t = Number of years

A = Total accrued amount (Both principal and interest)

Interest = A – P.

Let’s understand the workings of the simple interest calculator with an example. The principal amount is Rs 10,000, the interest rate is 10% and the number of years is six. You can calculate the simple interest as:

- A = 10,000 (1+0.1*6) = Rs 16,000.
- Interest = A – P = 16000 – 10000 = Rs 6,000.

**How to Use the ClearTax Simple Interest Calculator?**

The ClearTax Simple Interest Calculator shows you the simple interest earned on any deposits. To use the simple interest calculator:

- You must select the interest type as simple interest.
- You enter the principal amount.
- You then enter the annual rate of interest.
- You must choose the duration in days, weeks, quarters, or years.
- The ClearTax Simple Interest Calculator will show you the simple interest earned on the deposit.

### What is the Simple Interest Formula and when is it Used?

The amount one needs to pay or receive after a certain tenure base based on the interest can be calculated using the Simple Interest Formula. It is the best and simple method of calculating interest on the principal amount and should be used:

- Borrower’s Perspective: Repaying an additional amount of interest along with the borrowed principal. The formula for simple interest helps calculate the cost of borrowing.
- Lender’s Perspective: Providing money to someone in exchange for earning Interest Income. Utilizing the Simple Interest formula enables the determination of the extra income in interest.
- Investor’s Perspective: Investing surplus funds in deposits like FD, RD, or savings schemes such as SSY, PPF, etc. Simple interest calculations through a calculator help compute the Interest Income generated from the investment.

**How to Calculate Simple Interest using Calculator?**

A simple interest EMI calculator becomes a valuable tool for individuals seeking clarity on the gains they will accumulate at the end of the maturity period. The calculator swiftly provides the calculated result in seconds by inputting the principal, rate, and time values.

**How can Simple Interest Calculator help you?**

It is considered the optimal computational tool for assessing the monetary gain throughout the investment duration. Users can ascertain the amount of interest they will accrue. The calculator’s user-friendly design and precision have led to a recent surge in demand for a simple interest rate calculator. In calculating a simple interest rate, the principal amount remains constant. This underscores the principle that interest is calculated on the unchanging principal amount for successive periods.

- This simple interest calculator offers you output by calculating both principals and interest.
- Although it is easy to calculate simple interest for shorter tenors but for long consecutive years, a manual mechanism increases the chances of mistakes. So, use an online simple interest calculator for accurate calculation.
- Quick and easy way to gain insight into interest and increased invested capital.

**Advantages of using Simple Interest Calculators**

There are times when borrowers, depending on the manual method, people pay unpaid interest before principal. This situation leads to issues during computing simple interest on an amount. Following are some advantages of switching to an online calculator from the manual method.

- SI is computed irrespective of any unit. Be it dollar, euro or any other currency, it calculates effectively.
- Users who intend to save time on calculating interest rates with changing years can save their time with its judicious use.
- Numerous variables are available to help you gauge your total investment. So, knowing the total return and maturity time helps you make viable decisions.

**Benefits of ClearTax Simple Interest Calculator**

- The ClearTax Simple Interest Calculator shows you the simple interest on your deposit in seconds.
- You can compare the simple interest rates against the compound interest rates and determine the interest you pay on any loan.

## What Financial Instruments Use Simple Interest?

Simple interest works in your favor as a borrower, since you only pay interest on the original balance. That contrasts with compound interest, where you also pay interest on any accumulated interest. You may see simple interest on short-term loans.For this same reason, simple interest does not work in your favor as a lender or investor. Investing in assets that don’t offer compound growth means you may miss out on potential growth.

However, some assets use simple interest for simplicity — for example bonds that pay an interest coupon. Investments may also offer a simple interest return as a dividend. To take advantage of compounding you would need to reinvest the dividends as added principal.

By contrast, most checking and savings accounts and credit cards operate using compound interest.

### Simple Interest Versus Compound Interest

Compound interest is another method of assessing interest. Unlike simple interest, compound interest accrues interest on an initial sum and any interest that accumulates and adds to the loan. (In other words, on a compounding schedule, you pay interest not just on the original balance but on interest, too.)

Over the long run, compound interest can cost you more as a borrower (or earn you more as an investor). Most **credit cards** and loans use compound interest. Savings accounts also offer compounding interest schedules. You can check with your bank on the compounding frequency of your accounts.

## Compound Interest Formula

The basic formula for compound interest is:

A = P × (1 + | rn | )^{nt} |

In this formula:

- A = ending balance
- P = Principal balance
- r = the interest rate (expressed as a decimal)
- n = the number of times interest compounds in a year
- t = time (expressed in years)

Note that interest can compound on different schedules – most commonly monthly or annually. The more often interest compounds, the more interest you pay (or earn). If your interest compounds daily, you’d enter 365 for the number of time interest compounds annually. If it compounds monthly, you’d input 12 instead.

### Which is Better for You: Simple or Compound Interest?

As a borrower, paying simple interest works in your favor, as you’ll pay less over time. Conversely, earning compound interest means you’ll net larger returns over time, be it on a loan, investment, or your regular savings account.

For a quick example, consider a $10,000 loan at 5% interest repaid over five years.

As established above, a loan this size would total $12,500 after five years. That’s $10,000 on the original principal plus $2,500 in interest payments.

Now consider the same loan compounded monthly. Over five years, you’d repay a total of $12,833.59. That’s $10,000 of your original principal, plus $2,833.59 in interest. Over time, the difference between a simple and compound interest loan builds exponentially.

### FAQ’S Simple Interest Calculator

**Why does the ClearTax Simple Interest Calculator ask you to choose the compounding frequency?**

The ClearTax Simple Interest Calculator asks you to fill the compounding frequency from the daily, weekly, monthly, quarterly and other options. Quarterly compounding means interest is calculated and paid every three months. The ClearTax Simple Interest Calculator wants to know how often interest is added to your loans yearly.

**Is ClearTax Simple Interest Calculator easy to use?**

You can use the ClearTax Simple Interest Calculator from your home. It is an easy-to-use tool where you enter the compounding frequency, principal amount, interest rate and period. The ClearTax Simple Interest Calculator shows the interest you earn on the deposit in seconds.

**How does ClearTax Simple Interest Calculator help you to choose an investment?**

The ClearTax Simple Interest Calculator shows you the compound interest you earn on investments. It helps you to select the financial instruments that offer a higher interest rate based on your investment goals and risk tolerance.