Interest may be calculated in the same way for any of these types of credit. The lender may use a simple interest calculation or a compound interest method. The idea of simple interest is that interest is paid only on the original amount borrowed for the length of time that the borrower has use of the credit. With compound interest, the interest is calculated on the original amount borrowed and all interest accumulated during past periods. The compounding periods may be yearly, semiannually, quarterly, or continuously.
Credit cards are open-ended accounts (revolving accounts) where the amount borrowed varies monthly. Credit card balances can be calculated in various ways depending on the creditor. It is important to know which method your credit card company uses.
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