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Simple Interest Formula:
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Simple interest is a quick method of calculating the interest charge on a loan or investment. It is calculated only on the principal amount and does not compound over time, making it different from compound interest.
The calculator uses the simple interest formula:
Where:
Explanation: The formula divides the annual interest rate by 12 to get the monthly rate, then multiplies by the principal amount to calculate the monthly interest.
Details: Calculating monthly interest helps individuals and businesses understand their monthly interest obligations for loans or earnings from savings/investments, aiding in better financial planning and budgeting.
Tips: Enter the principal amount in INR and the annual interest rate as a percentage. Both values must be positive numbers (principal > 0, rate ≥ 0).
Q1: What's the difference between simple interest and compound interest?
A: Simple interest is calculated only on the principal amount, while compound interest is calculated on both the principal and accumulated interest from previous periods.
Q2: Is simple interest commonly used in India?
A: Yes, simple interest is commonly used for short-term loans, certain types of savings accounts, and some financial instruments in the Indian market.
Q3: How does this differ from EMI calculations?
A: EMI (Equated Monthly Installment) calculations typically use compound interest and include both principal and interest repayment, while this calculator only shows the interest portion using simple interest.
Q4: Can I use this for fixed deposits?
A: While some fixed deposits may use simple interest, many Indian banks use compound interest for fixed deposits. Check your specific bank's terms and conditions.
Q5: Are there any taxes on interest earnings?
A: Yes, interest income from savings and investments is generally taxable in India under the Income Tax Act, though some exemptions may apply for specific savings instruments.