Affirm calculates the annual percentage rate (APR) of a loan using simple interest , which equals the rate multiplied by the loan amount and by the number of months the loan is outstanding. This is different from compound interest , in which the interest expense is calculated on the loan amount and also the accumulated interest on the loan from previous periods. You can think about compound interest as “interest on interest,” which can make the your loan amount grow larger and larger. Credit cards, for example, use compound interest to calculate the interest expense on outstanding credit card debt.
**NOTE: For an example, see “Why Use Affirm vs a Credit Card” below**