Arithmetic Practice Test: Simple & Compound Interest — Flashcards

Simple interest is a one-time charge based on the principal balance and loan term. Compound interest is an ongoing charge based on the principal balance, loan term, and additional interest that's accumulated from previous payment periods. 

Here are some differences between simple and compound interest:
How much interest is paid: Simple interest is paid at regular intervals, such as monthly or annually. Compound interest is paid on both the principal and the already accrued interest.
How long interest is paid: Simple interest is a one-time charge. Compound interest is an ongoing charge. 

Here are some formulas for simple and compound interest:
Simple interest: I = (PRT)/100
Compound interest: A = P(1 + r/n)^nt