What is Simple Interest?
Simple interest is interest calculated only on the original principal amount of a loan or deposit, without compounding. It equals principal × rate × time.
How It Works
- Multiply the principal by the annual rate.
- Multiply by the number of years.
- Result is total interest over the period.
Saudi Context
Conventional consumer loans and short-term commercial paper in Saudi Arabia sometimes use simple interest, while Islamic finance products replace it with profit-rate structures like Murabaha.
Example
A SAR 100,000 loan at 5% simple interest for 3 years generates SAR 15,000 in interest.