A simple interest calculation is an easy method by which you can calculate interest on a loan or principal amount. It is used in almost every sector, such as banking, finance, automobile, etc. If you make loan payments, the monthly interest is first deducted from the payment, and the remainder goes towards the principal. When you borrowed money from your siblings but did not have enough pocket money for everything, you called your parents to give you some money. If we borrowed money, we called our parents to ask them what happened.
Your parents will give you the next month’s pocket money when you can pay back the money you borrowed. So, you use the borrowed money for the purpose you requested it for, and return the money when you get your next month’s pocket money from them. Real-world borrowing of money is not easy. A loan is often required to access a sum from the bank. The term simple interest is commonly used in banking to describe how you pay back loans on top of their original amount. You pay this additional amount depending on both your loan amount and the lender.
Tips to solve simple interest questions:
- Assuming a sum of money has an interest rate of 1/x of the principal, and the number of years is equal to the rate of interest, then the interest rate can be calculated as follows: √(100/x)
Derivation for this result:
We Know SI = {(P x R x T)/100}
Put SI = P/x ; and T=R
P/x = {(P x R x T)/100}
R2 = 100/x
R = √(100/x)
- Rates of interest are r 1 % for t 1 years, r 1 % for t 2 years, and r 3 % for t 3 years. If a man gets an interest of Rs x for (t 1+t 2+ t 3= n) years, the principal will be given by
x ×100 / r 1 t 1+ r 2 t 2 + r 3 t 3
Derivation for this result:
We have SI= P×R×S / 100
x × 100 = p (r 1 t 1 + r 2 t 2 + r 3 t 3)
P= x × 100/ [ r 1 t 1 + r 2 t 2 + r 3 t 3]
- The time is calculated as n= [100(x-1)]/R, when the amount of money becomes x times in n years with simple interest.
Derivation of the result:
A= P + (P × R× T/ 100)
If the amount becomes x times the principal then,
xP= P + (P × R× T/ 100)
P(x-1)= P×R×T /100
N= 100(x-1)/R
Important definitions to keep in mind:
- Principal (P): Loans are usually interest-bearing, so applicants pay lender interest over their remaining principal due. If the loan is interest-free, then the amount borrowed is not paid with interest.
- Interest (I): As a rule, interest is the amount a lender or financial institution receives for lending money. Interest is the monetary charge that a borrower must pay for the privilege of borrowing money. Interest is typically expressed as an annual percentage rate (APR).
- Time (T): It refers to the period for which the money is either borrowed or deposited. Usually, the interest amount is always calculated keeping in mind the period for money borrowed.
- Rate of interest (R): The interest rate is calculated according to the amount of money lent, deposited, or borrowed, over the period over which the interest is compounded. The interest on a loan depends on the principal, the interest rate, and the frequency of compounding.
The concept of percentage can be understood in the same way with the help of Cuemath, one of the best online maths teaching platforms, where you can get information regarding everything related to maths and coding.
