Simple interest
In one sentenceA return or financing cost calculated on the original amount alone for the whole period, without adding earlier returns to the amount it is calculated on.
Simply put
The calculation is direct: amount × rate × number of years. In financing offers it often appears as a flat rate or fixed profit margin, and it is calculated on the full amount even though you repay it gradually.
That is why the actual cost of flat-rate financing is higher than the advertised rate, so always compare offers by the effective annual rate.
Worked example
A transport establishment obtained financing of 100,000 SAR for 3 years at a flat rate of 5% a year calculated on the original amount.
Annual cost100,000 × 5% = 5,000 SAR
Cost for three years5,000 × 3 = 15,000 SAR
Total repaid = 100,000 + 15,000115,000 SAR
Formula: Original amount × annual rate × number of years
Don't confuse it with
Compound interestIt is calculated on the original amount plus what has accumulated on it, so the same amount at the same rate becomes 115,762.50 SAR after 3 years instead of 115,000.