The capitalization period is the period between two billings. At the end of this period the owner of capital has the right to dispose the interest. Maximum capital period is one year. When this period is lesser than one year, the capital owner can dispose the interest sooner, so the effective rate is greater than the one in the contract.
The interest rate is proportional factor that determines how many monetary units of the compensation we pay for every 100 monetary units of capital, which we used in one capitalization period. Unless specifically provided otherwise, the term interest rate represents composed nominal annual interest rate at which actual interest is calculated.
Methods of interest calculation affect the amount of our debt. There are two ways to calculate interest: simple interest calculation or linear and compound interest calculation or conformal. The characteristic of the first are that of the same balance of debt throughout the period we pay the same amount of interest on a daily basis, but those in the compound mode are increasing every day. Calculated Interest is added to the debt and the interest is also charged on them. If interest is calculated once a year, there are no differences, but if you are charged several times a year, the loans are calculated with compound mode and are cheaper.
In case of simple interest calculation is a linear increase.
To calculate simple interest requires the following information: the interest rate, start date and start balance and end date. Intermediate changes enter only if they exist.
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