Types of interest

Interest rates are the remuneration of the money borrowed, and the value is all calculated from a nominal rate. The nominal rate is a percentage charged for borrowing money in this case, considering the totalidade loan amount and the number of installments.

As already said, there are several types of interest existing today, each applied in its pessoal situation. In all cases, interest can be calculated in several ways. One of the best known calculations today is the so-called simple interest, in which the increase is calculated on the initial value of the debt.

However, there are other types of interest that can be applied, such as compound interest, in which the accrual is applied on a totalidade debt amount, including interest already paid. However, it is important to mention that this value is not absolute, since there is another relationship between risk and profitability.

And so the greater the risk, the greater the profitability, so it would be worth investing capital with a great risk, since the interest rate would also be higher. however, it is necessary to be very attentive, since the investment market is extremely volatile and, therefore, the risk is very high, as is the case with shares.

How interest is calculated

First, we need to clarify the concept of interest. Interest is remuneration that any person pays another for having lent him money, time or services.

The interest rate is a % that represents the return of borrowed money. For example, if you took out a loan of R$ 10,000.00 with an interest rate of 10%, you will need to pay back the amount in one year, the amount you will pay 11,000.00.

Types of interest and their impact today

Simple interest

Simple interest and the most used form of calculation by banks and financial institutions for operations such as loans and financing.

Benefits

As we mentioned above, simple interest is quite simple to calculate, since it only considers the rate negotiated at the time of joining the operation, the initial value of the loan or financing.

Compound interest

The calculation method is quite simple. The final amount is obtained from the following formula Mf = Mi * (1 + i)t. Where mf is the final amount, mi is the initial amount and the compound interest rate, and t is the time.

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