## How to calculate simple interest

Read,3 minutes

Simple Interest is a basic technique for determining the interest rate for a **loan**/**principal **amount. Simple interest is a model utilized in a lot of places, like banks, finance centers, automobile loans, etc. Whenever you make your loan payment, in the beginning, it goes toward the **monthly **interest, then the rest pays on the amount of the principal. We are going to talk about the **definition**, as well as the formula for simple interest, the **way **to determine simple interest, and show some **examples**.

### Simple Interest Defined

Simple Interest (S.I) is a technique for determining the interest rate for a principal quantity amount of money. Did you ever **borrow **money from someone when you ran out? Or perhaps you’ve **lent **someone money. What occurs after money is borrowed? You are supposed to use it for whatever the reason was for borrowing it. Then, you pay it back when it is due to whomever you borrowed it from. That’s the way borrowing money is supposed to work.

But most regular people you might borrow money from don’t charge you interest, but if you borrow from a bank or other financial institute, you will pay back **more **money than you borrowed because they **charge interest**. The amount is different depending on the place you borrow from, the amount of the loan, and the going rates. That is called simple interest and is the term used a lot in the banking industry.

### Formula for Simple Interest

The simple interest formula assists you in finding the amount as long as you know the amount of the principal, interest rate, and **timeframe **for payback.

The **formula **for simple interest is:

Where \(SI \ =\) simple **interest**

\(P \ =\) **Principal**

\(R \ =\) Interest **rate **(in **percentage**)

\(T \ =\) Time **duration **(in **years**)

To determine the total amount, use the following formula:

**Amount **(\(A\)) \(=\) **Principal **(\(P\)) \(+\) **Interest **(\(I\))

Where,

Amount (\(A\)) is the **total **of the money to pay back when the timeframe ends for which the money was borrowed.

This total amount formula in case of simple interest may additionally be put down as:

\(A \ = \ P(1 \ + \ RT)\)

Here,

\(A \ =\) **Total **amount after the provided timeframe

\(P \ =\) **Principal **amount or the initial loan amount

\(R \ =\) Rate of interest (per **annum**)

\(T \ =\) Time (in **years**)

### What kinds of simple interest are there?

Simple interest may be put into **two categories **whenever the timeframe is calculated in terms of **days**. There are both **ordinary **and **exact **simple interests. The **first **is a \(SI\) which uses \(360\) days as the exact number of days in a year. But exact simple interest uses the **precise **amount of days in a normal year (\(365\)) or \(366\) if it’s a **leap **year.

### Simple Interest Calculations

Here are a few simple interest **examples **utilizing the simple interest formula found in mathematics.

**Example one**:

Someone gets a **loan **for \($10,000\) from the bank for a timeframe of **one **year. The interest **rate **is \(10\) percent a **year**. Figure out the interest rate, as well as how much he’ll need to pay off when the year is over:

**Answer**:

The loan amount \(= \ P \ = \ $10,000\)

Rate of interest **annually** \(= \ R \ = \ 10%\)**Timeframe **borrowed for \(= \ T \ = \ 1\) year

So, simple interest for one year, \(SI \ = \ \frac{(P \times R \times T)}{100} \ = \ \frac{(10,000 \times 10 \times 1)}{100} \ = \ $1,000\)

The **total **that must be **paid **to the bank when the year is over \(=\) Principal \(+\) Interest \(= \ 10,000 \ + \ 1,000 \ = \ $11,000\)

**Example two**:

Someone **borrows **\($50,000\) for \(3\) years at an interest **rate **of \(3.5%\) per **year**. Determine the **interest **built up when the three years are over.

**Answer**:

\(P \ = \ $ 50,000\)

\(R \ = \ 3.5%\)

\(T \ = \ 3\) years

\(SI \ = \ \frac{(P \times R \times T)}{100} \ = \ \frac{(50,000 \times 3.5 \times 3)}{100} \ = \ $5,250\)

### Exercises for Simple Interest

**1)**\(4450 \times \frac{4}{100} \times 5 \ = \)

**2) **\(4800 \times \frac{13}{100} \times 13 \ = \)

**3) **\(5550 \times \frac{12}{100} \times 2 \ = \)

**4) **\(5900 \times \frac{9}{100} \times 3 \ = \)

**5) **\(2600 \times \frac{18}{100} \times 6 \ = \)

**6) **\(3350 \times \frac{15}{100} \times 7 \ = \)

**7) **\(3700 \times \frac{18}{100} \times 7 \ = \)

**8) **\(1500 \times \frac{14}{100} \times 9 \ = \)

**9) **\(1150 \times \frac{19}{100} \times 10 \ = \)

**10) **\(2250 \times \frac{2}{100} \times 5 \ = \)