Simple Interest Definition

Simple Interest is the method to calculate the interest where we only take the principal amount each time without changing it with respect to the interest earned in the previous cycle.

In simple terms, we can say that simple interest is the interest earned only because of the principal amount whereas compound interest is the interest earned on both principal and the previous interest earned.

Let us suppose we invest 100 rupees for 2 years at a rate of 10% for both simple interest and compound interest. Then for simple interest, the interest is calculated for 10% of 100 for the first year and similarly 10% of 100 for the second year.

Now for compound interest for the first year, the interest earned is the same 10% of 100 but for the second year, we take into account the interest earned in the previous year i.e. the interest earned in the second year is 10% of (100 + 10% of 100). Thus, we see that generally for the same terms compound interest is greater than simple interest.

Simple Interest

Simple Interest is the interest paid on the principal amount for which the interest earned regularly is not added to the principal amount as we do in compound interest.

Let’s learn more about Simple Interest in detail, including its formula and examples.

Table of Content

  • Simple Interest Definition
  • Simple Interest Formula
  • How to Find Simple Interest?
  • Simple Interest vs Compound Interest
  • Applications of Simple Interest
  • Simple Interest Solved Questions

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Simple Interest Definition

Simple Interest is the method to calculate the interest where we only take the principal amount each time without changing it with respect to the interest earned in the previous cycle....

Simple Interest Formula

The formula to calculate Simple Interest is:...

How to Find Simple Interest?

Simple interest on any sum of money is calculated using the steps discussed below,...

Simple Interest vs Compound Interest

Let’s understand the difference between simple interest and compound interest through the table given below:...

Applications of Simple Interest

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Simple Interest Solved Questions

Question 1: Rajesh takes a loan of Rs 20000 from a bank for a period of 1 year. The rate of interest is 10% per annum. Find the simple interest and the total amount he has to pay at the end of a year....

Conclusion of Simple Interest

The interest accrued on a principal amount over a predetermined period can be easily calculated using the simple interest technique. It is determined by the length of the loan or investment as well as a set percentage of the principal known as the interest rate. Simple interest calculations are appropriate for fast estimations and straightforward financial transactions since they are simple to comprehend and compute....

Simple Interest- FAQs

What is simple interest?...