| What you are comparing | In this illustration |
|---|---|
| Starting balance | $1,000 |
| Assumed monthly rate and payment | 1% and $5 |
| After three months: unpaid interest kept separate | $1,015.00 total |
| After three months: interest added to principal | $1,015.15 total |
See where unpaid interest sits
The assumed $5 monthly payment is smaller than the interest accruing at 1% on the starting $1,000. The unpaid amount has to appear somewhere in the accounting.
Keeping unpaid interest separate produces a $1,015 total after three months in the saved model. Adding it to principal produces $1,015.15 because later interest uses the increased principal. Ask whether your agreement permits that addition; do not infer it from the balance alone.
This is a saved illustration with stated assumptions, not an offer or prediction for your circumstances. The full calculation and original limitations are in the optional archive.
Explore the complete interest fees and debt mathematics guide →