Have you ever borrowed money from your siblings when your pocket money got exhausted? Or lent him may be? What happens when you borrow money? You use that money for the purpose you had borrowed it in the first place. After that, you return the money whenever you get the next monthâ€™s pocket money from your parents.This is how borrowing and lending works at home. But in the real world, money is not free to borrow. You often have to borrow money from banks in the form of a loan. During payback, apart from the loan amount you pay some more money that depends on the loan amount as well as the time for which you borrow. This is called simple interest. Simple interest finds extensive usage in banking.

## Simple Interest: Terminologies

**Principal or Sum**: The money that is lent or borrowed.**Interest**: It is the money paid in addition to the principal.**Rate**:It is the**percentage**of principal paid as interest.**Time**: It is the duration for which the principal is borrowed.**Amount**: It is the total money paid back at the end of the time period for which it was borrowed. It is given by-

**Amount (A) = Principal (P) + Interest (I)**

**Simple Interest: Formula**

Simple interest is given by the formula â€“

**\( SI = \frac {P \times R\times T}{100} \) **

Where SI = simple interest

P = principal

R = interest rate (in percentage)

T = time duration (in years)

### Problems Statements on Simple Interest

**Rishav takes a loan of Rs 10000 from a bank for a period of 1 year. The rate of interest is 10% per annum. Find the interest and the amount he has to the pay at the end of a year.**

**Solution**:

Here, the loan sum = P = Rs 10000

Rate of interest per year = R = 10%

Time for which it is borrowed = T = 1 year

Thus, simple interest for a year, \( SI = \frac {P \times R\times T}{100} = \frac {10000 \times 10\times 1}{100} = Rs 1000 \)

Amount that Rishav has to pay to the bank at the end of the year = Principal + Interest = 10000 + 1000 = Rs 11,000

**Namita borrowed Rs 50,000 for 3 years at the rate of 3.5% per annum. Find the interest accumulated at the end of 3 years.**

**Solution:**

P = Rs 50,000

R = 3.5%

T = 3 years

\( SI = \frac {P \times R\times T}{100} = \frac {50000 \times 3.5 \times 3}{100} = Rs 5250 \)

**Mohit pays Rs 9000 as an amount on the sum of Rs 7000 that he had borrowed for 2 years. Find the rate of interest.**

**Solution:**

A = Rs 5000

P = Rs 7000

SI = A â€“ P = 7000 â€“ 5000 = Rs 2000

T = 2 years

R = ?

\( SI = \frac {P \times R\times Â T}{100} \)

\( \Rightarrow R = \frac {SI \times 100}{P \times T} \)

\( \Rightarrow R = \frac {2000 \times 100}{7000 \times 2} =14.29 % \)

Thus ** R Â = 14.29% **

Thus was all about simple interest, to learn more about other type of interest, i.e. Compound Interest, visit our site BYJU’S.