Question

Advantages and disadvantages of simple interest

Answer 1

Answer:

Interest is the compensation received for lending money and paid by the person borrowing the money. A well-known form is the interest that consumers receive (credit or savings interest) or pay (debit interest) on an account at a bank.

There are essentially two types of interest, simple interest and compound interest. Simple interest is that which is not added to the initial capital, that is to say, the interests are always calculated on the same initial amount of the investment; while compound interest is one in which the profit obtained is added to the capital, generating increasing rates of profit since the interest percentage is calculated on a higher basis.

The main disadvantage of the simple interest is precisely that the base of obtaining gains is never widened, since the interests are not linked to the capital, with which a long-term investment with this type of interest is inadvisable. Now, the main advantage of this type of interest is that it allows you to quickly consolidate earnings, since you can withdraw the income obtained without modifying the base amount on which the interest is calculated.

Answer 2

Answer:

Simple interest, specifically in bank offers a grace period of six days, which gives time to payback. When saving money or investing, if the interest rate is high then the customer benefits. The disadvantages in simple interest are that if the interest rate is high then the borrower will pay more.