الفائدة المركبة هي نوع من الفائدة التي تُحتسب على المبلغ الأصلي للاستثمار بالإضافة إلى الفوائد التي تم الحصول عليها في فترات سابقة. بمعنى آخر، يتم احتساب الفائدة على الفائدة، مما يؤدي إلى زيادة القيمة الإجمالية للاستثمار مع مرور الوقت. تُعتبر الفائدة المركبة من أهم المفاهيم في عالم المال والاستثمار، حيث تتيح للمستثمرين تحقيق عوائد أكبر على مر الزمن ببساطة من خلال إعادة استثمار الفوائد المكتسبة.

Definition of Compound Interest

Compound interest is the interest that is added to the loan balance. Then the creditor charges interest on this increased balance.

Concept of Compound Interest and Examples

When the accumulated capital is compounded, it is added to the loan balance. Compound interest makes your loan balance grow larger. As a result, you are not only borrowing the original amount of the loan, but you are also borrowing to cover the interest costs. Because of that, you also have to pay interest on the interest that your creditor has charged you.

Your loan balance will increase faster and faster as the amount of interest you borrow continues to grow. Paying interest on interest is a form of compounding, but it works in favor of the creditor, not in your favor.

Alternative name: Negative amortization. Alternative definition: In accounting, compound interest is considered the total interest cost for a project. Instead of charging interest costs annually, interest costs are treated as part of the cost of a long-term asset and are amortized over time.

How Does Compound Interest Work?

With some loans, such as student loans, you may have the option to temporarily defer payments on your loan.

For example, Direct Unsubsidized Loans allow deferral of payments until you finish school. This is an attractive feature as it helps with cash flow while studying. However, it may lead to increased costs and restrict cash flow in the future.

When you take out student loans, the creditor may capitalize interest costs at the end of the deferment or forbearance period. Instead of paying interest as it accrues, you can allow costs to accumulate. Because you are not paying interest costs, those costs are added to your loan balance. As a result, the loan balance increases over time, leaving you with a larger loan amount upon graduation.

The most important thing to know is that you will have to pay the costs of compound interest at some point, and you will pay additional interest when you capitalize it. This change occurs in the form of higher monthly payments or payments that last longer than originally intended.

After March 2020 and with the measures taken during the pandemic, many financial institutions use compound interest as part of the relief granted on millions of mortgages, auto loans, credit cards, and many other types of loans.

This alleviates the cash flow pressure for borrowers but creates higher future debt obligations.

With subsidized loans, the federal government pays your interest costs during deferment, so your loan interest does not capitalize.

What Does This Mean for Your Loan Repayment?

As a student, you might not care if your loan balance increases each month. But a larger loan balance will affect you in the years to come – perhaps for many years ahead. It also means you will pay more interest over the life of your loan.

Even if you are not required to pay anything, it is advisable to pay something. For instance, during the forbearance or deferment period, you may not have to make a full payment. But anything you contribute to the loan will decrease the amount of interest that will capitalize.

Your creditor can provide you with information about the amount of interest being charged on your account each month. Pay at least that amount so that you do not fall deeper into debt. Doing so puts you in a better position for the inevitable day when you start making larger monthly payments to pay off your debt.

How Much

Will it cost you?

The cost of the loan, aside from any one-time fees, is the interest you pay. In other words, you are paying back what they gave you, plus a little extra. Your total cost is controlled by: the amount you borrow: the higher your loan balance, the more interest costs you will pay. Interest rate: the higher the interest, the higher the cost of borrowing. Loan term: if it takes you longer to repay, there is more time for your lender to charge interest.

You may not have much control over the interest rate, especially with federal student loans. But you can control the amount you borrow, and you can prevent that amount from increasing on you.

If you capitalize the interest, your monthly payments (and lifetime interest costs) will be higher.

Note: the minimum required payment is what is needed to prevent damage to your credit and late payment fees. You can always pay more, and it is often wise to do so. Paying extra on your debts helps you spend less on interest, get rid of debt faster, and qualify for larger loans on better terms in the future.

If you want to see how the numbers work for you, you can use a spreadsheet (like Excel or Google Sheets, for example) to model your loan. Just set the payments to zero for a sample deferment period.

Sources

The Balance uses only high-quality sources, including peer-reviewed studies, to support the facts in our articles. Read our editorial process to learn more about how we fact-check and keep our content accurate, reliable, and trustworthy.

Investor.gov. “What Is Compound Interest?” Accessed July 5, 2021.

AccountingTools. “Capitalized Interest.” Accessed July 5, 2021.

Federal Student Aid. “Subsidized and Unsubsidized Loans.” Accessed July 5, 2021.

Source: https://www.thebalancemoney.com/capitalize-interest-315836