SIMPLE INTEREST If interest is calculated uniformly on the original principal throughout the loan period it is called simple interest.

Explanation

What is Simple Interest?

Money is the only need for people as a means to meet many of their needs. To meet their needs, people tend to borrow money from various other sources like banks. Banks charge interest on these loans taken by people. While different banks charge different amounts of interest for different particular periods of time.

Here in this article about a particular type of interest that is simple interest. First, let us start with an example that shows the meaning of interest that is charged on loan and how it affects the principal amount of the loan that is taken.

Suppose that an individual has taken a loan of 1000 from a bank that is charging an interest of 10% for a period of 1 year. This means that the individual will be paying 10%, which are 100 for every year for the 1000 loan amount taken. Thus, from the above example, it can be seen that the principal amount is 1000 and the interest amount taken is 100. Now that we can understand that the interest is the percent that is charged on the principal loan  amount taken from the bank. So, on Rs 1000 loan taken by the individual from the bank, the individual has to pay back an interest of Rs 100 and therefore the total amount to be repaid will be Rs 1100 at the end of the year.

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