Simple Interest

Sometimes we need to borrow things.

It could be as small as a pen, a pencil or a ruler.

You may need to borrow a phone to make a call or money to buy a snack.

We can return the pen, the pencil, the ruler or the money borrowed to buy the snack or make the call very easily.

Sometimes, however, you may need to borrow money on a larger scale from the bank or credit union, for example.

Borrowing money from a financial institution comes at a cost.

The cost of borrowing money is called interest.

Interest is defined as money paid regularly at a particular rate for the use of money lent, or for delaying the repayment of a debt.

Interest can be calculated in two ways: simple interest and compound interest.

Simple interest is calculated on the principal or original amount of a loan.

Compound interest is calculated on the the principal amount and also on the accumulated interest of previous periods (interest on interest).

It is better to borrow with a simple interest loan.

Compound interest is best for investment (it is better to save or invest on a compound interest plan).

The sum of money you wish to borrow is the Principal (P).

The agreed percentage of the amount borrowed or invested is the Rate (R).

The time taken to repay the loan or to invest is the time (T).

The Simple Interest (S.I.) is the percentage of the principal that accumulates over time.

Simple interest is calculated using the following formula:

 $S.I.\ =\ \frac{PRT}{100}$  

Note:- We can find any quantity represented in the formula once we have all other quantities.