What is he difference between simple and compound interest?

Answer #1

When you borrow money, that amount of money is called the prinicipal. If interest is paid on the principal amount and nothing more, that is simple interest.

However, for example, when you buy a house, something else happens. The lender takes not just the interest on the principal amount, but interest on TOP of the interest already paid along the way. And every time you make a mortgage payment, your payments go mostly to the interest and partially to the principal. Compound interest in Canada is done semi-annually. I think in the US there is no such legislation - someone can correct me if I’m wrong. But the offset of that is that in the US, the interest you pay on your house is tax deductible.

Answer #2

Simple interest is finding the Principle (or money). P = 100 x the interest / the interest rate x the period of the loan or interest. In compound interest, the Principle is increased by adding (or reinvesting) the interest at the end of each period during the term. The final amount = P (1+ interest rate / 100 x number of compounds per year) compounds x time in years.

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What is he difference between simple and compound interest?

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