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Learn the difference between simple interest and compound interest.

You've just calculated simple interest, in which you only pay interest on the principal you borrowed. Many credit cards and other loans, however, utilize compound interest, where the interest you owe gathers interest of its own. Compound interest can result in much higher interest over time than simple interest. Calculating compound interest requires a different formula. Here's a side-by-side comparison of the two systems:

- You take a loan out for $100 at 30% simple interest. You'll owe $30 interest after the first time period, $60 after the second, $90 after the third, and $120 after the fourth.
- You take out a second loan of $100 at 30% compound interest. You'll owe $30 interest after the first time period, then $69, then $119.70, then $285.61.
- Multiple other factors can come into play when calculating more complex forms of interest, including credit risk and inflation.

Don't forget the principal. When a loan is paid off, the borrower doesn't only have to pay the interest — they must also pay back the principal that was borrowed. The sum of the interest generated plus the principal is also known as the "future value," or the "maturity value" of the loan

Read more: https://www.wikihow.com/Calculate-Simple-Interest

Also visit: https://www.investopedia.com/terms/o/opportunitycost.asp/?ref=calcapps.io

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