We call simple interest as flat rate interest also. Simple interest is always calculated on original principle.
Simplest method to calculate simple interest is the formula which is:
I = PRT,
Here 'I' is the total interest to be paid, 'P' stands for principal, 'R' stands for rate, 'T' stands for time.
This formula can be used to calculate principal, rate and time Period as well. Whenever we return the amount, then amount is called repayment amount. This amount is basically an addition of principal and interest.
Here is a Point we need to remember that unit of loan and principal must be same. If units of loan and principal are not same then we have to make it same. For example if loan is in annual rate and principal is in monthly rate then we have to change loan rate into monthly rate.
Let us understand simple interest calculation with help of an example:
If principal = $ 1000 rate = 3.5 / 1200 and time = 18 months then calculate simple interest?
Solution: Simple interest I = PRT
I = (1000 * 3.5 * 18) / 1200 = 52.50.
Total simple interest is $ 52.50.