Interest is the extra money the lender charges you to borrow money from them. If you borrow money, you pay interest BUT if you save or invest the money, you earn interest.

Interest Earned: When  you save money you are allowing the institution where you save (e.g. the bank) the privilege of borrowing your money to their customers and for this reason, they pay you a fee called interest

Interest Charged: When you borrow money from a financial institution or purchase on credit you need to pay the bank or credit provider for the risk of lending you the money and for this reason, you pay what is also called interest 

There are four things we need to know before calculating interest:

1. The amount we will be borrowing
2. The interest rate (%)
3. Whether interest is calculated per month or per annum (year)
4. The time frame we choose to pay back the loan 

• When taking credit you have to pay back the money borrowed plus interest
• In calculating interest, the three aspects considered are: the loan amount, the percentage of interest and how long you take (the term) to pay back
• The longer you take to pay, the more interest you will pay
• Sometimes you are charged simple interest which is interest added on the loan amount, but in some cases, compound interest is added. This is interest added on the loan amount and on the interest already owing from the previous month or year, meaning interest is added on interest
• When saving, compound interest will benefit you as you will earn interest on top of interest already earned in previous months or years, but when borrowing, compound interest means you will pay much more.