Difference Between Simple Interest and Compound Interest

The difference between simple interest and compound interest is important to understand the key differences between Simple Interest and Compound Interest are important to remember and understand what separates one from the other. Simple interest can be defined as the principal amount of loan or deposit, a person makes into their bank account. The Compound interest is simply the interest that accumulates and compounds over the principal amount. Thus, this is the key difference between the two types of Interest. It is important to know the Interest Formula to solve for such problems.

Difference between Simple Interest and Compound Interest

There are two different formulas that segregate the difference between Simple Interest and Compound Interest. The formula for simple interest is:

Simple Interest = Principal amount (P) x Interest Rate (I) x Term of loan or deposit (N) in years

Similarly it is also possible to calculate the formula for the compound interest as well, the formula for the compound interest can be calculated as:

Compound Interest = Total amount of Principal and Interest in future less Principal amount at present.

Below you can find the key differences between Simple Interest and Compound Interest in the tabular column below:

Difference between Simple Interest and Compound Interest

Simple Interest

Compound Interest

Simple Interest can be defined as the sum paid back for using the borrowed money, over a fixed period of time.

Compound Interest can be defined as when the sum principal amount exceeds the due date for payment along with the rate of interest, for a period of time.

The return is much lesser when compared to Compound Interest.

The return is much higher.

The principal amount is constant

The principal amount keeps on varying during entire borrowing period

The growth remains quite uniform in this method.

The growth increases quite rapidly in this method.

The interest charged on is for the principal amount.

The interest charged on it is for the principal and accumulated interest.

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Plot the line graph for this data. Which of the following statements is true?

Sarah brought a new car in 2001 for Rs.8,00,000. The value of her car changed each year as shown in the table beow
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