Nelly wanted to buy a new car that cost $14,500.00. Her local bank will give her a five year loan at 3.25% interest so she can buy the car. How much interest will Nelly have to pay over the five years and how much will she have to actually pay back to the bank for borrowing the money?

There are two basic forms of interest - simple interest and compound interest.  

For simple interest the formula is:

I = PRT (interest equals principal, interest rate and time)

The principal is the actual amount of money you borrow or put into a savings account.