You take a Loan of Rs. 100 from the bank for 1 year.
And the bank says you have to pay 10% Simple
Interest* per year
It means at the end of the year you have to pay back the Rs. 100
(loan amount) PLUS Rs. 10 (Simple Interest*) i.e. Rs. 110 in total.
Simple Interest* calculation
( Rs. 100 * 10 / 100) * 1 = Rs. 10
i.e. I = (P * r/100)*n where
P= Principal: , I = Interest; , r= rate of interest and n = no. of years
But BE AWARE!!!
- Always read the terms and conditions of the loan sanction letter as they may vary between institutions.
- Always read the fine print, some institutions may say they charge 2% (per month in small print), but the actual rate works out to 24% per year.
- Always annualise interest rates to know the real rate and the impact it has on your finances.
*Banks do not offer simple interest rate loan
Disclaimer : This message is presented as a reading and teaching material with a sincere purpose of making the reader financially literate. It is not intended to influence the reader in making a decision in relation to any particular financial products/s or services/s.
Printed by Reserve Bank of India, Financial Inclusion & Development Department.
