Simple Interest

A quick method of calculating the interest charged on a loan. Is determined by multiplying the
interest rate by principal by the number of periods.

Simple interest is calculated using the following formula:

Simple Interest = P×r×n

where:
P=Principal amount
r=Annual interest rate
n=Term of loan, in years

5 Positive Effects of Simple Interest

Simple interest loans are a beautiful thing. Let's take a look at some of the benefits of
simple interest auto loans:

• Set payment amount, for a set time frame.

*(Simple interest is calculated by multiplying the daily interest rate by the principal, by the
number of days that elapse between payments.)

• Making larger payments than required reduce your principal balance more quickly,
and therefore reduces your remaining interest charges.
*(When you make loan payments, you’re making interest payments first; the larger payment
you pay the more it reduces your interest charges.)

• You're not paying "interest on interest".

*(- Unlike Compound Interest, Simple interest does not compound, which means that an
account holder will only gain interest on the principal, and a borrower will never have to pay
interest on interest already accrued.)
• Simple interest loans can be paid off early.
*( If you can pay earlier every month, your principal balance shrinks faster, and you pay the
loan off sooner than the original estimate. Conversely, if you pay the loan late, more of
your payment goes toward interest than if you pay on time.)

• Simple interest is more advantageous for borrowers than compound interest, as it

keeps overall interest payments lower.
*(As I said earlier, compared to compound interest, simple interest is easier to calculate and
easier to understand because its overall interest charges is much more lower than compound
interest.)
Simple Interest
is calculated on the principal amount and also on the accumulated interest of previous
periods, and can thus be regarded as "interest on interest."

The formula for calculating compound interest in a year is:

Compound Interest=(P(1+i)n)−P
Compound Interest=P((1+i)n−1)

where:
P=Principal
i=Interest rate in percentage terms
n=Number of compounding periods for a year

5 Positive Effects of Compound Interest

• Better than simple Interest

*(Simple interest is based on the principal amount of a loan or deposit. In contrast, compound
interest is based on the principal amount and the interest that accumulates on it in every
period.)

• It’s extremely beneficial.

*(When it comes to investing, Compound interest can be extremely beneficial if you can allow a
significant amount of time for your investment to grow. Especially when you’re planning to have
a business.)

• Get Started Early

*(If you want to easily accumulate wealth and take advantage of the magic of compound
interest, it’s important to start early and be consistent.)

• The more time, the more growth potential.

*(Compound interest has the power to make a relatively small investment earn a large profit
over a long period of time.)

• It will help you grow your funds faster

*(Unlike Simple Interest, compound interest is much better because it helps your account funds
increase quickly because the rate of growth is calculated based on the money you accumulate
over the years in addition to the original principal amount.)