What Kinds Of Loans Use Simple Interest?

Most short-term loans use simple interest, as do mortgages. Common short-term loans include personal and auto loans. This means you don't pay interest on interest, like you do with credit cards.

What's The Difference Between Simple Interest And Compound Interest?

Simple interest incurs interest only on the money borrowed, known as the principal. Compound interest is interest calculated on the principal plus accumulated interest. So, if you have a loan with daily compounded interest, the interest charges increase daily based on the previous day's balance, including interest.

Are Mortgages Compound Or Simple Interest Loans?

Fortunately, mortgage loans are simple interest loans. This means you only pay interest on the amount borrowed. You don't pay interest on the interest, which would make mortgage loans unaffordable for most.

Simple Interest: Definition And How it Works