Menu Simple Interest
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Important Notes
- Simple interest is calculated only on the principal amount or on that portion of the principal amount that remains. It excludes the effect of compounding.
- Principal amount refers to the sum of money that is loaned or borrowed on which the interest is to be calculated.
- An interest rate is the amount of interest due per period, as a proportion of the amount lent, deposited or borrowed (called the principal sum). It is defined as the proportion of an amount loaned which a lender charges as interest to the borrower, normally expressed as an annual percentage.
- The borrower needs to pay the initial sum of money (principal) along with the interest on that principal after the end of time period which together called as Amount.
- The simple interest calculation provides a very basic way of looking at interest. It’s an introduction to the concept of interest in general. In the real world, your interest—whether you’re paying it or earning it—is usually calculated using more complex methods.
Compound Interest
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Important Notes
- Compound interest is the addition of interest to the principal sum of a loan or deposit, or in other words, interest on interest.
- It is the result of reinvesting interest rather than paying it out, so that interest in the next period is then earned on the principal sum plus previously accumulated interest. Compound interest is standard in finance and economics.
- Principal amount refers to the sum of money that is loaned or borrowed on which the interest is to be calculated.
- An interest rate is the amount of interest due per period, as a proportion of the amount lent, deposited or borrowed (called the principal sum). It is defined as the proportion of an amount loaned which a lender charges as interest to the borrower, normally expressed as an annual percentage. Interest can be compounded on any given frequency schedule, from continuous to daily to annually.
- The borrower needs to pay the initial sum of money (principal) along with the compound interest after the end of time period which together called as Amount.
