Question

When dealing with a loan, who benefits from compounding interest more frequently, and why?

Answer 1

The lender would benefit from compounded interest, providing the money which was loaned is paid back. Lenders add interest charges to loans so that they can earn a healthy profit and also mitigate risks. Lending out money can be a risky business, which is precisely why lenders perform credit and background checks on clients before handing out loans.

Answer 2

When dealing with a loan, the lender benefits from compounding interest more frequently.

This is because the interest compounded increases further interest calculations. Compound interest in simple terms means interest on interest. When an amount is compounded, it yields interest which is added to the original amount and the amount increases. This amount is further compounded and same process is repeated again.

So, a lender is the one who gets the most benefit from compounding interest.