In finance, simple interest is a specific type of interest that only includes the principal and the interest. In other words, it does not have any other factors involved. The formula to calculate this type of interest is as follows: I = P*R*T where I represents the interest, P represents the principal value, R represents the annual percentage rate or APR, and T represents the number of years.
Simple interest is the simplest form of lending and borrowing. With this type of interest, the lender will receive a set return on their investment for a period of time, usually expressed as an annual percentage. The main benefit to this type of lending is its simplicity. There are no complex calculations needed to compute how much each party should receive at the end of the transaction.