Turning to interest on loans, you may think of two ways to calculate: single and compound interest. So what's the difference between the two? Let's talk about it。

What's the difference between a single and a compound interest

First, the concepts of single and compound interest are different. Unilateral interest refers to interest earned on fixed principal, whereas compound interest refers to both principal and interest earned as the basis for the next calculation of interest. To put it simply, each time a single interest is calculated on the basis of the initial principal amount, while the compound interest is calculated on the basis of the prior interest。

Second, the total interest on a single and a compound interest is different. In general, the total interest of a single interest is lower than that of a compound interest. The reason is simple: single-interest does not include interest on the principal, so you'll pay a relatively low interest on the entire loan period。

Moreover, the calculation of single and compound interest is different. Single-interest calculations are based on the initial principal of the loan, while compound interest is calculated on the basis of a predetermined rotation of the cycle for new principal and interest. In short, it is like calculating interest on a fixed principal, and the compound interest becomes larger when the new principal becomes larger, and interest increases accordingly。

Finally, the formulas for the calculation of single and compound interest vary. The single-interest calculation is: a single-interest = principal loan = interest rate on loan day x days of loan; and a compound interest = principal = period (1 + interest rate)。

So, how do you judge whether your loans are single or compound? If you have mortgage loans in a bank, there is no need to worry in general, and most mortgage loans in a bank are calculated at a single interest. But if you borrow through some web platforms, you need to be particularly careful. It is possible that in the terms of the contract that you are not aware of, the agreement has been entered into for the compound interest. At this point, it is suggested that you look carefully at the contract and have specific interest rates and methods of calculation. If compound interest is found or interest rates are too high, it is recommended to shift to formal bank loans to avoid a rapid increase in the burden of interest due to compound interest, which is difficult to repay。