Answer
Simple interest
Work Step by Step
Assume I borrow 10,000 dollars at 8% interest. If I am paying simple interest, at the end of the first year, I would pay 800 dollars in interest. At the end of the second year, I would pay another 800 dollars in interest.
If I am paying compound interest, at the end of the first year, I would pay 800 dollars in interest. At the end of the second year, I would pay 864 dollars. (This is 800 dollars from interest off the principal amount and 64 dollars off the interest from year one.)
