# How to calculate simple interest formula

## Simple Interest

All of you must have borrowed some money from your friends in your childhood and you returned the same money as you borrowed which means there is no gain for him who is giving the loan.

But in the official world giving a loan to someone is advantageous for a person who is giving a loan as the person who is taking a loan will return some extra amount on the loan. This extra amount on the loan is Interest. The amount of Interest depends on the time for which the loan is taken as well as the amount of loan taken.

Simple interest is the type of interest which is charged on the principal amount at a defined rate. e.g if you have taken a loan of 15000 for three months at an Interest rate of 5% then this 5% will be charged only on the principal amount of 15000 rather than compounded with the interest of each month.

Here's a detailed note on simple Interest and its calculation method:

### Simple interest calculation formula.

The simple interest amount is equal to the principal amount times the annual interest rate divided by the number of periods per year m, times the number of periods n:

simple interest amount = principal amount × (rate / m) × n

#### Example

Calculate the simple interest amount of principal amount of \$5,000, annual interest rate of 6% and time of 18 months.

Solution:

principal amount = \$5,000

rate = 6%

m = 12 months/year

n = 18 months

simple interest amount = \$5,000 × (6% / 12months/year) × 18months

= \$5,000 × (0.06 / 12months/year) × 18months

= \$450

How is simple interest calculated?

The recipe for ascertaining basic premium is: Principal * Interest Rate * Term of the credit. Credits seldom utilize the basic interest computation, yet those that do are car advances and transient individual credits. A modest bunch of home loans likewise utilize this estimation, most prominently the every other week contract.