Interest is defined as the cost for purchasing borrowed money.
Interest can refer to: - The price paid by borrowers to lenders.
- The amount earned by investors in deposited funds. Hence, it
can contribute to both income and expense. There are three types
of interest rates. - Simple interest rates depend solely on the
principal amount. - Compound interest rates compute interest
based on the principal amount plus the accrued interest.
Compound interest rates can lead to ballooning loans if payments
are not made regularly. If the interest will add to your
income—for example, in investments and savings accounts–then you
should go with compounding interest. This way you money will
grow faster. - Amortized interest is computed based on the
remaining balance. This means that if payment on amortized loans
are made regularly this results in smaller interest. However, it
also means that non-payment can lead to increased interest if
penalties are added to the principal due to late payment. If
interest will add to your