Sadharan Byaj:

Introduction:

Most of the time people take or give a loan on compound interest but there might be a scenario where people also offer a simple loan to help out. We also call it Sadharan byaj which means people have less burden to pay back their loan amount with very little interest. Generally, this type of loan has less burden for those who take and keep their loan for certain years. Simple interest doesn’t grow fast as compared to compound interest. The interest amount that occurred over the period of time doesn't get added every year on a principal amount. The growth is far less than the compounding interest rate. Let me show you how this loan get calculated and to calculate it, you have to have the following components:

1. Principal:

To calculate a simple interest, you need to have a principal amount. Principal amount can be any amount ranging from 100k to 1 million.

2. Interest Rate:

In order to calculate a simple interest, you also need to have an interest rate. It can range from 3 to 24 percent. It depends upon bank to bank.

3. Time:

Time is matter for any calculation in the banking system. You need to know the time for loan amount in order to calculate the interest.

Simple Interest Formula

Simple Interest = P x T x R
Where:

1. A is the future value with principal and interest
2. P is the principal amount. It is an initial amount that lenders give to the borrowers.
3. R is the annual interest rate.
5. T is the time or the number of years that money is given for or taken for by the borrowers.

Example of Simple Interest
Let's say Ram is a person who takes Rs. 100000 from SBI bank for 5 years and lets say if the bank provides him 6 % interest rate. The total amount he will pay back to his bank and let see if he used the above formula then how much he needs to pay.
Rs. 100000 x 0.06 x 5 = Rs. 30000
The final amount will be 100000 + 30000 = 130,000

The benefits of a Simple interest loan ( Sadharan byaj ) are given below:
1. A person like Ram will save lots of money if has no compounding interest
2. It will be easy to pay off.
3. Less burden
4. It never compounded or it never get added to the principal amount
5. It is easy to understand and easy to calculate

Conclusion:

The simple interest is super easy and it never gets added to the principal amount. People who get this type of loan have less burden and they pay back quickly. They don’t need to worry about how their money will increase over the period of time. It never grows exponentially. It can be very advantageous for borrowers because of the low cost and straightforward calculation.