To determine an interest payment, simply multiply principal by the interest rate and the number of periods for which the loan remains active. Simple interest refers to interest earned only on the principal, usually denoted as a specified percentage of the principal. The concept of interest can be categorized into simple interest or compound interest. When paying interest, the borrower will mostly pay a percentage of the principal (the borrowed amount). Interest is the cost of using borrowed money, or more specifically, the amount a lender receives for advancing money to a borrower.
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