interest is a basic percentage charged on the principal or the initial amount of the loan.
interest is interest that is paid on both the principal and the previous interest of the loan so your interest is reinvested leading to higher interest in the future that grows faster.
This type of interest is also known as compound interest. Compound interest can be calculated daily, monthly, quarterly, or annually, and the frequency of interest compounding can have a significant impact on the total amount owed over time.
For example, if you have a loan with compound interest that compounds annually, the interest accrued in the first year is added to the principal for the following year's calculations. This leads to a snowball effect where the interest grows faster over time.
On the other hand, simple interest is just calculated on the principal amount for the entire duration of the loan. This means that the amount of interest paid each period remains constant and does not increase as the loan term progresses.
In general, compound interest leads to a higher total amount owed compared to simple interest for the same loan amount and interest rate. It is essential to understand the type of interest being charged on a loan to accurately calculate the total cost of borrowing and make informed financial decisions.