Compound Interest refers to the interest on a loan or deposit calculated based on both the initial principal and the accumulated interest from previous periods. Unlike simple interest, which is calculated only on the principal amount, compound interest grows at an accelerating rate due to its compounding effect.
The Rule of 78 is a method for calculating the amount of interest to be refunded if an installment loan with add-on interest is paid off early. It takes its name from the sum of the digits from 1 to 12, totaling 78.
Simple interest is a method of calculating the future value of an amount of money assuming that interest paid is not compounded. Interest is paid only on the principal.
