ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -As a borrower, simple interest is better because you’re not paying interest on interest. It’s easier to repay debt with simple interest. Compound interest can help you to build wealth over time because your earnings also earn money.

Detailed explanation-2: -Compound interest is often best when you’re saving money because you’ll earn interest on interest. But if you’re taking out a loan, a simple interest loan may be the better option since it could lead to less costs overall.

Detailed explanation-3: -With simple interest, you pay interest only on your principal amount and don’t accrue interest on your unpaid interest. Because of this, you pay less interest over the life of your loan. With each month’s payment, you pay the full amount of interest you owe for that month.

Detailed explanation-4: -Why is compound interest important? Compound interest causes your wealth to grow faster. It makes a sum of money grow at a faster rate than simple interest because you will earn returns on the money you invest, as well as on returns at the end of every compounding period.

Detailed explanation-5: -Installment loans, like auto loans and mortgages, use simple interest. This means you’ll end up paying less interest as your balance lowers. Savings accounts and credit cards typically use compounding interest. That means you’ll accrue more interest as the life of the loan continues.