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# simple interest basics | simple interest amount formula

In this article simple interest basics, you will learn the basics of simple interest and formulas to calculate and solve problems related to simple questions and answers.

Suppose a person x borrowed some amount of money from someone. so what we see in our daily life is that when this person X will return the borrowed amount to Lender Y, he has to return some extra amount with originally borrowed money. The extra amount that Person X Pay to Person Y is known as Interest.

You can consider Interest as rent on the money borrowed. Here in this very 1st example, Person X utilized the lender’s money for his personal work, and later he will pay the money or the item that he has borrowed from someone, and for the use of that money, he agreed to pay the extra amount.

Money is important in our life. in this capitalistic world, no one can deny the importance of money in our life. when you will grow older you will have to buy many things for that either you will pay money from your savings or you will take that money from financial institutions. if you will take that money from financial institutions you will have to pay interest to them hence it is very important to know about Interests and Formulae to calculate it.

Content Index

## Types of Interest

Friends Interests are of two categories. in which simple interest is more important as for most financial dealings we will have to pay the interest as per simple interest only… while if you will understand the power of compounding or compound interest it will change your life

1. Simple interest and
2. Compound interest.

1st we will discuss simple interest we will understand the basic concept of simple interest and the terms related to it and the formula to solve related questions.

Principal:-

The principal is the amount of money that someone borrows from a Lender or Financial institution.

Amount:-

The amount is the sum of Principal and accumulated Interest over time.

Rate of Interest:-

The rate of interest is the value of money that someone pays for per hundred of the borrowed amount. The rate can be of two types 1). rate per month and2) rate per annum.

Local lenders charge per reply rate per month institutional lenders demands for your reply rate per annum

## Formula related to Interest

\\   Simple Interest= \frac{principal\times time\times rate} {100}


\\ Principal= \frac{simple\ interest\times100} {rates\times time }
\\ Rate= \frac{interest\times 100} {principal \times time }
\\ time= \frac{interest \times 100}{ principal \times rate }
\\ principal= \frac{interest \times 100}{time \times rate }
\\ Amount=Principal+ Interest

Till now you have understood the simple interest basics and formula to solve various questions related to simple interest. Friend interest is the extra amount that someone pays with the principal amount to the lender..

Now let’s talk about the other type of interest i.e Compound Interest

## Compound Interest

Compound Interest is the eighth wonder of this world. In compound Interest, Interest is charged not only for the Principal amount but Interest is charged on the interest too. so in compound interest one either get or pays Interest on Interest.

if the borrower doesn’t pay the money on time then after a given time Interest is added to the principal.

The principal keeps on increasing at the end of every year by an amount to the interest for that specific year.

It may be good from the lender’s point of view but it is very dangerous for borrowers.

Below I am providing the list of formulas that will be helpful for the students to solve compound interest-related questions.

## Formula for Compound Interest

\color{blue} {

\\ compound interest= P\left(1+ \frac{r}{n}\right) ^n - P
}
\\
\\
\\ P= Principal Amount \\ r= Rate \ of\ Interest \\ n= Time Period

## FAQ on Simple Interest Basics

### What is Simple Interest?

Simple Interest is the extra amount of money that someone pays for the borrowed money.

### What is the formula of Simple Interest

Simple Interest=( principal×time×rate)/100​

### What are the 3 factors used in calculating simple interest?

The factors used in the calculation of simple interest are Principal amount value, Time, and Rate of Interest.

### Where is simple interest used?

Almost for all short-term loans, personal loans, car loans simple interest is charged.

### Banks use Simple Interest or Compound Interest

for timely payments, banks used simple interest but if someone pays beyond the due date then the scenario may be different.