# How To: Use simple interest and compound interest in algebra

In this math lesson you will learn about simple interest and compound interest.

Whenever you want to borrow money from a bank, you have to pay interest at a certain percent rate. The main difference between compound and simple interest is the fact that the simple interest is paid only on the principal, while the compound interest is paid on both the principal and the accumulated interest The simple interest is given by the following formula:

I=PRT

where P is the principal (the initial amount of money), T is the time in years, I is the interest earned, and R is the interest rate per year.

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