By Leanna Kelly No matter which side of a financial transaction you’re on, it’s important to understand the concept of interest. It’s the charged fee for borrowing money—often a percentage of the amount borrowed. For lenders, it’s what they can expect to make from the transaction. For borrowers, it’s the cost of that transaction.
While the concept of interest remains the same, it takes different forms. The type of interest you’re dealing with depends on the nature of the investment, the amount, the term and who’s involved in the transaction. In total, there are seven chief types of interest.
1. Simple Interest
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