Charge Given on Borrowed Money or Simple Interest
Sohini said that they were going to buy a new scooter. Mohan asked her whether they had the money to buy it. Sohini said her father was going to take a loan from a bank. The money you borrow is known as sum borrowed or principal.
This money would be used by the borrower for some time before it is returned. For keeping this money for some time the borrower has to pay some extra money to the bank. This is known as
You can find the amount you have to pay at the end of the year by adding the sum borrowed and the interest. That is,
Amount = Principal + Interest.
Interest is generally given in per cent for a period of one year. It is written as say 10% per year or per annum or in short as 10% p.a. (per annum). 10% p.a. means on every ₹ 100 borrowed, ₹ 10 is the interest you have to pay for one year.
Let us take an example and see how this works.
Example 12
Anita takes a loan of ₹ 5,000 at 15% per year as rate of interest. Find the interest she has to pay at the end of one year.
We can write a general relation to find interest for one year. Take P as the principal or sum and R % as Rate per cent per annum. Now on every ₹ 100 borrowed, the interest paid is ₹ R
Therefore, on ₹ P borrowed, the interest paid for one year would be