The simple interest according to the Good Credit is, “the rate that does not accumulate to the capital that produces it, is calculated with the multiplication of the capital by the interest rate, without considering reinvestment or capitalization of the interests”.
In other words, it is the money you have to pay to the bank (or financial institution that granted you the loan) in relation to the payment period elapsed since you received the loan.
The interest rate and the payment term
It is calculated according to the amount of money you requested, the interest rate and the payment term. We are going to make a representative example: if you requested a personal payday loan of $ 15,000 with an annual interest of 10%, you will pay $ 1,500 interest and the total amount at the end of the term is $ 16,500.
Personal payday loans are excellent financial support, however, it is necessary to know their characteristics (basic financial terms) to make the most convenient decisions. It is important to consider the cost of the loan and its associated fees (for each of the offers). Nowadays it is a task that is done in seconds thanks to the loan comparators, they make it easy for you to choose an auto loan, mortgage loan, personal payday loan or credit card.
What is the difference between simple interest and compound interest?
Compound interest is added to the initial capital (initial amount requested) generating new interest each year. Money, with this interest rate, has a multiplier effect. In the case of fixed-term investments, the compound interest is paid on the accumulated variable capital (therefore, the interest obtained in each time interval will be greater than the previous one, in case of not withdrawing the money). Among the most prominent differences with the simple interest we have to:
- In simple interest, interest money is not added to capital (consequently, no new interest is generated).
- It is calculated on the initial capital, it does not vary during the agreed term.
- With simple interest, interest is paid in each period and paid immediately, they do not accumulate into capital to form a new capital as compound interest does.
Why is it important to use a loan comparator?
According to a study conducted by the National Commission for the Protection and Defense of Financial Service Users (CONDUSEF), 2 out of every 3 Mexicans do not compare loan offers before hiring them. The institution recommends proper financial education before making these types of decisions, being aware of the credit conditions to be hired is important for our finances.
On the contrary, assuming credit commitments that do not adapt to our ability to pay can lead to serious complications.
In that sense, the most important aspects to analyze the offer of a loan are the interest rate and the total annual cost (CAT). In simpler terms, it is the data that allows you to determine what the bank or financial company charges on a loan. The loan comparator shows you (in seconds) the most convenient offers according to the amount and payment term you need. Then, you can choose the offer that best suits your income and payment possibilities.