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Simple interest is interest that is applied to the original amount for the whole period of the investment or loan.

This is unlike compound interest where the interest received on an investment is re-invested, or the interest due on a loan is added to the loan outstanding if unpaid, and so itself gains interest.

With simple interest on loans, it is often calculated that borrowing a certain amount for a number of years will be charged at a certain rate for the whole period; then at the end of the period of borrowing the original loan and all the interest are repaid at that moment.

However, if monthly repayments are made, then part of the original loan as well as the interest for the month are repaid; this means that not all the loan is borrowed for the whole period and so the real [effective] rate of interest for the period is actually higher than the given rate as that given rate assumes no part of the loan is repaid until the very end.

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Q: The concepts of simple interest
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