“₹2 per 100” Interest: How to Work Out Monthly Interest on a Loan

In much of India, money between relatives, neighbours and small businesses is lent “at two rupees” or “at one and a half”. Everyone at the table understands it, but few people write down how it works, and that is where disagreements start a year later. Here is the arithmetic in plain words.

What “₹2 per 100” means

It is the interest for one month on every ₹100 lent. “₹2 per 100 a month” means that for each ₹100, ₹2 of interest is due every month. In percentage terms that is 2% a month. “One rupee” is 1% a month, and “one and a half” is 1.5%.

The one-line calculation

Monthly interest = amount ÷ 100 × rate

• ₹50,000 at ₹2: 50,000 ÷ 100 × 2 = ₹1,000 a month.
• ₹20,000 at ₹1.5: 20,000 ÷ 100 × 1.5 = ₹300 a month.
• ₹1,00,000 at ₹1: 1,00,000 ÷ 100 × 1 = ₹1,000 a month.

For the whole period, multiply by the number of months. ₹50,000 at ₹2 for a year is ₹1,000 × 12 = ₹12,000 of interest, so ₹62,000 comes back in total. To try your own numbers, with every due date listed, use the free interest calculator.

What it comes to in a year

Because the rate is per month, the yearly rate is twelve times as much. ₹2 per 100 a month is 24% a year; ₹1.5 is 18%; ₹1 is 12%. That is useful when you compare it with a bank loan or a fixed deposit, which are quoted per year.

Paid every month, or all at the end

Agree on this before any money moves. With monthly interest, the interest is paid each month and the amount itself comes back at the end. With everything at the end, the amount and all its interest are paid together on the last day: ₹50,000 at ₹2 for six months means ₹56,000 on the final date.

When part of the money comes back early

The fair and common way is simple interest on what is still owed. If ₹20,000 of the ₹50,000 comes back, the interest from the next month is on ₹30,000: 30,000 ÷ 100 × 2 = ₹600 a month. Interest is not charged on interest unless both of you agreed to that in advance.

Keep the record clean

• Write down the amount, the rate per 100, the start date, the period and how interest is paid, on the day the money moves.
• Record each interest payment and each repayment as its own entry, with its date. Never edit the original amount.
• Keep a month-by-month schedule, so both of you can see which months are paid.
• Set a reminder on each due date for yourself, rather than chasing the other person from memory.

Expense Khata does this for you: switch on “Charges interest” when you lend or borrow, type the rate per 100, and it keeps the schedule, the totals and a reminder on each due date, privately on your phone.

A word of care

This guide explains the arithmetic, not whether a rate is fair or legal. Rates that are high on a yearly basis can be a heavy burden, and lending money at interest as a regular business may be regulated by your state’s money-lending laws. If you are unsure, ask someone qualified before you agree.