How is the interest you pay or receive calculated?

How do these calculations affect your interest?

What's the difference between simple interest and compound interest?

Does repaying a loan early save you money?

Although Shakespeare cautioned "neither a borrower nor a lender be," using and providing credit has become a way of life for many individuals in today's economy. Examples of borrowing by individuals are numerous: home mortgages, car loans, credit cards, etc. While perhaps more commonly thought of as investing, many examples of lending by individuals can be identified. By opening a savings account, an individual makes a loan to the bank; by purchasing a savings bond, an individual makes a loan to the government.

As with goods and services that an individual might buy or sell, the use or extension of credit has a price attached to it, namely the interest paid or earned. And, just as consumers shop for the best price on a particular item of merchandise, so too should consumers "comparison shop" for credit — whether borrowing or lending. But comparing prices for credit can, at times, be confusing. Although the price of credit is generally stated as a rate of interest, the amount of interest paid or earned depends on a number of other factors, including the method used to calculate interest.