# Simple interest formula explained

Learn and know simple interest formula in maths. In the chapter commercial maths we will learn this formula which has a great importance. Whatever we are learning in commercial maths all that concepts we will be using in our daily life then and there.

Actually interest is of two types, first one is simple interest and the second one is compound interest. Both are having differ meanings. In these both interests do you know which one yields more interest? Compound interest yields more interest than simple interest. Now we will discuss in detail about simple interest.

## What is the meaning of simple interest?

Suppose if you are lending some money or if you are borrowing some money for some certain period of time and with some rate of interest then you need to pay some extra money along with the money you have borrowed or lent. The extra money is called as simple interest.

### The Simple interest formula as follows:

For finding how much extra you need to pay, we have a formula. The formula for simple interest is given as $\frac { PTR }{ 100 }$. In the simple interest formula, P stands for Principal, T stands for Time Period and R stands for Rate of interest.

What is principal in simple interest?

In the simple interest formula, the meaning of principal is “the money borrowed or lent is called as principal”.

What is interest rate or rate of interest?

In simple interest formula, Rate of interest tells that how much extra money you need to pay for the money that you have borrowed or lent per 100. The meaning for this is, suppose if the interest rate is 4% then you need to pay extra 4 rupees for every 100 rupees.

What is time period in simple interest?

The meaning of time period in the simple interest formula is for how many years or months you are borrowing or lending money. Time period will be in terms of years.

#### The process of calculating simple interest when time in months?

Suppose if the time period is not given in years that means if they give time period in months then how to solve? We should not substitute time period in terms of months, so we should convert months to years. For example, if 4 months are given then convert this into years by dividing with 12. 4 months = $\frac { 4 }{ 12 }$ years. After conversion substitute in the simple interest formula and find the result. To understand this, in a better way do some simple interest problems where time period is given in terms of months.