In this post, we are going to learn about “What is Interest?”. In banking, Stock Market, and Loan Calculation, we all face interest. but What is interest actually? let’s understand it in very easy way, Let’s begin…
Question to be solved-
- ❓What is INTEREST
- ❓Types of INTEREST
- ❓What & How simple interest works for interest Calculation?
- 🌟 Definition / Fraction
- 🌟 Example
- ❓What & How compound interest works for Interest Calculation
- 🌟 Definition / Fraction
- 🌟 Example
- ❓What are interest calculation times?
- ❓The full form of APR?
📊 Explanation about Interest
- 💸 Interest is the charge for the privilege of borrowing money or deposit money.
- ⚖️ Interest applied typically expressed as Annual Percentage Rate (APR)
- 2️⃣ Two main types of interest can be applied to loans: Simple and Compound.
Type of Interest
Simple Interest
- 💸 Simple interest is a set rate on the principle originally lent to the borrower that the borrower has to pay for the ability to use the money.
- Example of simple interest is – the EMI system.
Compound Interest
- 💸 Compound interest is interest on both the principle and the compounding interest paid on that loan.
- 💸 Compound interest (or compounding interest) is interest calculated on the initial principal, which also includes all of the accumulated interest from previous periods on a deposit or loan.
- ✖️ Compound interest is calculated by multiplying the initial principal amount by one plus the annual interest rate raised to the number of compound periods minus one.
- 🗓 Interest can be compounded on any given frequency schedule, from continuous to daily to annually.
- ➕ When calculating compound interest, the number of compounding periods makes a significant difference.
- 🌟 Compound Interest is thought of “interest on interest“.
- Compound Interest is the rate at which money grows over time. It’s calculated using simple math, but it takes some work to understand how it works.
Excel interest calculation Template
If you want to do Simple & Compound calculations in your awesome spreadsheet program, you can use it in the excel program. Here you can download a Loan Interest calculator excel template.
Loan amortization schedule1.xls
Conclusion
If you are from a banking, or commerce background, you must know about all types of interests. but, simple & compound is the most common interest. loan calculation, banking-related interest, or share market interest, you must know about all kinds of interest. I hope this post enlightens your mind. Thank you so much for your valuable time.