What is Simple Interest?

Simple Interest is a way of calculating interest on a loan or investment based on the initial principal amount, the interest rate, and the time period for which the money is borrowed or invested. Unlike compound interest, which calculates interest on both the principal and the accumulated interest, simple interest is calculated only on the original amount (the principal).

Simple Interest Formula:

The formula to calculate simple interest is:

Where:

• I = Interest (the money earned or paid on the principal)
• P = Principal (the initial amount of money)
• R = Rate of Interest (annual interest rate in percentage)
• T = Time (the period for which the money is borrowed or invested, typically in years)

How it Works:

The simple interest is calculated by multiplying the principal amount by the rate of interest and the time. The result is then divided by 100 to account for the percentage rate.

For example, if you borrow €1,000 at an interest rate of 5% for 2 years, the simple interest would be:

So, the total interest you would pay after 2 years is €100.