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Interest on the principal only — and a side-by-side with monthly compounding, so you can see what the difference costs (or earns).
Simple interest: I = P × r × t. Interest is calculated on the original principal only — it never earns interest on itself.
Compounding the same 5% monthly would end $1,470 higher — that's interest earning interest.
Dashed line: simple interest grows in a straight line. Gold curve: monthly compounding bends upward — the gap widens every year.
Simple interest shows up in some auto loans, short-term personal loans, and bonds' coupon payments, while most savings accounts and credit cards compound. The distinction matters more the longer the term: over a few months the two are nearly identical, but over decades compounding pulls far ahead. Many borrowers check which method a loan uses before comparing rates.
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