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Why do loans use compound interest?
I think it's a simple question.
Update:
The question is "why?" not "what is compound interest?"
1 Answer
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- Don GLv 78 years agoFavorite Answer
Interest is always based on the current unpaid balance of the loan. If you make monthly payments, and part of your payment reduces the principal outstanding, it is to your advantage to have interest recalculated monthly. That's a form of compounding.
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