Simple Interest Calculator India

Q: What is the simple interest formula?

The simple interest formula is SI = P × R × T / 100, where P is the principal amount, R is the annual rate of interest in percentage, and T is the time period in years. The total amount is A = P + SI. For example, ₹1,00,000 at 10% for 3 years gives SI = ₹30,000 and total amount = ₹1,30,000.

Q: What is the difference between simple interest and compound interest?

Simple interest is calculated only on the original principal. Compound interest is calculated on principal plus accumulated interest. For ₹1,00,000 at 12% for 2 years: SI = ₹24,000, but CI (annual) = ₹25,440. The gap grows with longer tenures. For investments, CI is better. For loans, SI costs less.

Q: Why do gold loans use simple interest?

Gold loans from NBFCs like Muthoot and Manappuram use simple interest with bullet repayment — borrower pays principal + interest at end of tenure. This suits short-term loans (3-12 months) and makes cost transparent. RBI regulates gold loan NBFCs and caps loan-to-value at 75%.

Q: When is simple interest used in India?

Simple interest is used for gold loans (bullet repayment), Kisan Credit Card crop loans at subsidised 4% p.a., informal lending (hand loans), short-term trade credit, and chit fund calculations. RBI mandates reducing balance method for most formal bank loans like home loans and personal loans.

Q: Does RBI allow flat rate (simple interest) for bank loans?

RBI mandates that banks and NBFCs disclose the effective annualised rate and use reducing balance method for most retail loans. A flat rate of 12% equals roughly 21-22% effective rate. However, gold loans with bullet repayment legitimately use simple interest since the principal doesn't reduce during tenure.

Calculate simple interest on any amount with the formula SI = P x R x T / 100. Compare simple vs compound interest, calculate gold loan bullet repayment interest, and see daily/monthly breakdowns. Updated with current gold loan rates from SBI, Muthoot, and Manappuram for March 2026.

Calculate simple interest on any amount using SI = P x R x T / 100

Principal amount (P)

₹

The initial amount on which interest is calculated

Rate of interest (R)

% p.a.

Annual interest rate. Gold loans: 8-12%, FD: 6-8%

Time period (T)

Duration for which interest is calculated

Time unit

Select years, months, or days

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How to Use This Calculator

Simple Interest tab

Enter your principal amount, rate of interest, and time period (in years, months, or days). The calculator instantly shows the simple interest earned, total amount (principal + interest), and a daily/monthly/annual breakdown. Use this for gold loan interest estimation, FD approximation, or any flat-rate interest calculation.

Simple vs Compound tab

Enter the same principal, rate, and time to see a side-by-side comparison of simple interest vs compound interest with annual, quarterly, and monthly compounding. The calculator highlights exactly how much more compound interest earns, helping you understand the true cost of different interest calculation methods.

Gold Loan Interest tab

Enter your gold loan amount, interest rate, and tenure in months. The calculator computes the total interest payable and total repayment amount for a bullet repayment gold loan. It also shows monthly and daily interest cost for budgeting purposes.

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The Formula

Simple interest is calculated using the most fundamental interest formula in finance:

Simple Interest:
SI = P × R × T / 100

Where:
P = Principal amount (the initial sum)
R = Rate of interest per annum (%)
T = Time period in years
SI = Simple Interest earned or payable

Total Amount:
A = P + SI = P + (P × R × T / 100) = P × (1 + R × T / 100)

Compound Interest (for comparison):
A = P × (1 + r/n)^n×t
Where n = compounding frequency per year (1 = annual, 4 = quarterly, 12 = monthly)

In simple interest, the interest is calculated only on the original principal amount throughout the tenure. Unlike compound interest, earned interest does not itself earn further interest. This makes SI straightforward to calculate and always lower than CI for the same principal, rate, and time (when time > 1 compounding period).

Example

Rajesh — Gold loan of ₹3,00,000 from Muthoot Finance for 6 months

Rajesh is a small business owner in Coimbatore who needs ₹3,00,000 for inventory. He pledges his family gold and takes a bullet repayment gold loan at 12% p.a. from Muthoot Finance for 6 months.

Step 1: Calculate simple interest

Principal (P)₹3,00,000

Rate (R)12% per annum

Time (T)6 months = 0.5 years

Step 2: Apply the formula

SI = P × R × T / 1003,00,000 × 12 × 0.5 / 100

Simple Interest₹18,000

Total repayment₹3,18,000

Step 3: Monthly interest cost

Monthly interest cost₹18,000 / 6 = ₹3,000/month

Daily interest cost~₹100/day

Step 4: Compare with compound interest

Simple Interest₹18,000

CI (monthly compounding)₹18,455

Savings with SI₹455

Rajesh pays ₹3,18,000 at the end of 6 months (₹3,00,000 principal + ₹18,000 interest). Because gold loans use simple interest, he saves ₹455 compared to what he would pay under monthly compounding. His monthly interest cost is ₹3,000, which he factors into his business cash flow planning.

FAQ

What is the simple interest formula? ▼

The simple interest formula is SI = P × R × T / 100, where P is the principal amount, R is the annual rate of interest in percentage, and T is the time period in years. The total amount payable or receivable is A = P + SI. For example, ₹1,00,000 at 10% for 3 years gives SI = 1,00,000 × 10 × 3 / 100 = ₹30,000, and total amount = ₹1,30,000.

What is the difference between simple interest and compound interest? ▼

Simple interest is calculated only on the original principal amount. The interest earned each year remains the same. Compound interest is calculated on the principal plus any previously accumulated interest — interest earns interest. For example, ₹1,00,000 at 12% for 2 years: SI = ₹24,000, but CI (annual) = ₹25,440 — a difference of ₹1,440. The difference grows dramatically with higher rates and longer tenures. For investments (FDs, mutual funds), compound interest is beneficial. For loans, simple interest costs less.

Why do gold loans use simple interest instead of compound interest? ▼

Gold loans from NBFCs like Muthoot Finance and Manappuram Finance typically use simple interest with bullet repayment — the borrower pays the entire principal plus interest at the end of the tenure. This structure suits the short-term nature of gold loans (3-12 months) where borrowers need quick funds and plan to repay in one shot. Simple interest makes the cost transparent and predictable. However, some lenders offer EMI-based gold loans that may use reducing balance (compound) interest. RBI regulates gold loan NBFCs and caps the loan-to-value ratio at 75%.

When is simple interest used in India? ▼

Simple interest is used in several contexts in India: 1) Gold loans with bullet repayment from Muthoot, Manappuram, and bank gold loan schemes. 2) Kisan Credit Card (KCC) crop loans at subsidised 4% p.a. 3) Informal lending (hand loans between individuals). 4) Short-term trade credit in businesses. 5) Chit fund calculations. Note that RBI mandates the reducing balance method for most formal bank loans (home loans, personal loans, car loans), which uses compound interest. Flat rate (which looks like simple interest) is also used by some NBFCs but the effective rate is much higher.

Does RBI allow flat rate (simple interest) for bank loans? ▼

RBI has mandated that all banks and NBFCs must disclose the effective annualised interest rate and use the reducing balance method for most retail loans. A flat rate of 12% on a reducing balance is equivalent to roughly 21-22% effective rate, which is why RBI stepped in to prevent misleading quotations. However, for gold loans with bullet repayment (no EMI), simple interest is inherently the reducing balance method since the principal doesn't reduce during the tenure. Short-term trade credit and agricultural loans also legitimately use simple interest.

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