Top Tag Interest is charged every time you do not pay any expenses on time or take money from an institution – and even from a friend who needs more money. But in each case, they can be determined in a different way, since there are two types: simple interest and compound interest. For you to track how much of the money you have taken (or what you have failed to pay) will weigh in your pocket, knowing how to calculate interest is a good strategy! And I’m here to make it very easy to understand!

Come see how to calculate simple and compound interest and know some calculators that do it for you:

## Simple interest Calculating simple interest is, say … simple! That’s what you get when you borrow money every month, over the amount you’ve received.

Just imagine: You borrowed your friend \$ 2000 and he will charge simple interest of 8% per month. To know how much interest you will pay in each monthly installment, just calculate:

2000 x 0.08 = 160

** 0.08 = 8%, okay?

Now, you already know that in each month, in addition to returning a portion of those \$ 2000, you will also have to pay \$ 160 of interest.

Want to know how much interest you will pay in total, until zeroing out all debt? You can calculate that too! Just take this monthly interest amount (\$ 160, in that case) and multiply by the number of months you will take to return all the money you have taken.

Assuming you chose to pay in 5 times, look how it looks:

160 x 5 = 800

Then, you will pay \$ 800 interest only to repay your entire loan.

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## Compound interest

Calculating compound interest is no longer as simple as that. The account is more chatinha! Only they are charged on most of the banks’ services, so it pays to understand how they work.

In compound interest, the rate is always calculated over the initial value (the one you borrowed) plus the amount of interest charged in the previous month. As in the first month you still have not spent anything with interest, then the rate is applied only upon the initial value.

To get clearer, take the same example from above and think thus:

First month:

2 000 x 0.08 = 160 → \$ 160 is the amount of interest you will pay in the first month

Second month:

2 000 + 160 (interest of the first month) = 2 160 → it is in this amount (R \$ 2 160) that you will apply the interest rate to pay the second month. So it looks like this:

2 160 x 0.08 = 172.80 → R \$ 172.80 is the amount of interest you will pay in the second month

Third month:

2 000 + 172.80 (interest of the second month) = 2 172.80 → it is in this amount that you will apply the interest rate to pay the third month. That’s how it goes:

2 172.80 x 0.08 = 173.82 → R \$ 173.82 is the amount of interest you will pay in the third month

And so on! Always adding up the initial value with the interest of the previous month.

For those who are accurate and like a formula, to calculate how much you will pay at the end of the term, adding up the initial value with compound interest, just use this here:

## The account no one tells you! Special check is not balance in the account! Banks usually put it in “total balance”, along with the amount you actually have. But the truth is that it’s kind of a loan (pretty bad, by the way!) And it’s extremely high compound interest! Just so you have an idea, it gets to charge more than 300% interest per year, while a personal loan can charge a third of that.
Concluding: of special even he has nothing! You can run away!