Lenders calculate how much interest you’ll pay with each payment in two main ways: simple or on an amortization schedule. Short-term loans often have simple interest. Larger loans, like mortgages, ...

Interest is one of the ways lenders make their money, and it’s what makes it worth it for them to give out loans. If you’re borrowing money, interest is the cost the bank charges you for the service.

Simple interest is paid only on the principal, e.g., a $10,000 investment at 5% yields $500 annually. Compound interest accumulates on both principal and past interest, increasing total returns over ...