Distinguish, differentiate, compare and explain what is the main difference between Simple and Compound Interest in maths. Comparison and Differences.
Interest is called the cost of borrowing money, and depending on how it is calculated, can be classified as simple interest or compound interest.
The money borrowed or lent out for a certain period is called the principal or the sum.
Extra money paid for using other’s money is called interest.
If the interest on a sum borrowed for a certain period is reckoned uniformly, then it is called simple interest (S.I.).
Compound Interest is the addition of interest to the principal sum of a loan or deposit, or in other words, it is the interest on interest. After a specified period, the difference between the amount and the money borrowed is called the C.I. for that period.
Amount = Principal + C.I.
Difference between Simple and Compound Interest
|S.No.||Simple Interest||Compound Interest|
|1||Calculated only on the original principal.||Calculated on the interest earned and the principal.|
|2||The interest earned is reinvested. Therefore, it is not used in interest calculation for the following periods.||The interest earned during the previous period is added to the principal. The total will become the new principal and all the money will earn interest.|
|3||It is normally used for short-term loans of 30 or 60 days.||It is used for long term loans.|