Of all the things you probably learn in your math class, interest is one concept you must pay attention to; it has a lot of applicability in life later on. While it is relatively simpler to calculate simple interest, a few complexities can leave you dumbfounded. Let's understand the concept and then see how to go about working on it. What is Simple Interest? Suppose, A borrows money from B. In this case, A is charged interest for getting this privilege, and B earns this interest. A is the borrower and B is the lender in this transaction. Simple interest is charged on the basic amount of money borrowed, called the Principal. Simple interest loans are mostly short-term loans and the interest is calculated in percentage. Simple interest is what the bank pays you on your deposits. Learn How to Calculate Simple Interest ... A borrows USD 20,000 from B for a term of 6 years at 5% simple interest. Here, the P (Principal) = 20,000, R (Rate of Interest) = 5%, and T (Term) = 6. Note: 5% = 5/100 = 0.05 So, going by our formula of I = P x R x T, Simple Interest = 20,000 x 0.05 x 6= 1,20,000 x 0.05= 6,000 How to Calculate Simple Interest if Time is not in Years, but in Days? It is not necessary that a particular amount of money is always borrowed for a few years. It can also be borrowed for a few days or some months. However, we do not consider months but only days. Let's have a look at one more example. A borrows USD 10,000 from B, from February 14, 2011 to August 12, 2011, at 10% simple interest. Now, the formula is still I = PRT. But the T here will change. Let us see how. We need to first count the number of days in each month that the money is borrowed for. Here we have, February = 15, March = 31, April = 30, May = 31, June = 30, July = 31, and August = 12. . ' . 15 + 31 + 30 + 31 + 30 + 31 + 12 = 180 days. But in the formula, we will consider, 180/365 as it is 180 days out of 365 days. So, the end result formula for simple interest will be = 10,000 x 0.10 x 180/365 How to Calculate Simple Interest on a Loan? Simple interest loans are calculated in a similar way. To understand better, let's look at this example. A woman purchases a designer bag worth USD 10,000. Her interest rate stands at 10% and the time period at 1 year. She also opts for weekly installments. How much interest will she have to pay? I = P x R x T= 10,000 x 0.10 x 1= USD 1,000 How much will she have to pay back in all? Principal Amount + Interest = 10,000 + 1,000 = USD 11,000 How much will she have to pay every week? Total payments / loan period x no. of weeks in a year. . ' . 11,000 / 1 x 52= 11,000 / 52= USD 211.54 Now that you know how to calculate simple interest, it'll be easier for you to manage your finances in respect to loans and the like.