Simple Interest — Concept and Formula

Simple interest (SI) is interest calculated only on the original principal for the entire period of the loan or deposit. The principal never changes: whatever interest accrues in one year does not itself earn any interest in later years. Each year the borrower is charged exactly the same amount of interest, because the base on which it is computed stays fixed at $P$.

Since the rate $R$ is the interest on ₹100 for one year, the interest on a principal $P$ for one year is $P \times \dfrac{R}{100}$, and for $T$ years it is simply that same yearly figure multiplied by the number of years. This gives the basic simple-interest formula:

where $P$ is the principal, $R$ is the rate percent per annum, and $T$ is the time in years. The total amount repayable is then

The key feature to notice is that simple interest grows in a straight line — the interest for 2 years is exactly double the interest for 1 year, the interest for 3 years is exactly triple, and so on. This is precisely what distinguishes it from compound interest, where the growth accelerates (§7). …