Interest Rates Definition

 

 

It is important to understand “interest” before discussing interest rates definition. Interest is the cost of utilizing borrowed money. The percentage rate at which it is charged is the rate of interest.[br]

Interest Rates Definition

Interest rates definition may vary for a lender and borrower, but they are, however, two sides of the same coin. Here are other ways of defining interest rates:

·        An interest rate is the price paid by loan seeker for using the money that does not belong to him/her. For instance, a small business entrepreneur may seek loan from a banking institution to take his/her business off the ground. An interest rate can also be expressed in terms of the return that a lender is eligible to receive to defer the use of his/her money by loaning it to the borrower. It is the percentage rate for one year.

·        The cost, expressed as percentage, of borrowing money is termed interest rate. It is also the compensation for bearing the risk and performing the service of lending money. Interest rates keep changing due to changes in the demand and supply of credit in the economy. Interest rates are different for different types of loans.

·        Interest rate is the percentage rate charged by a lender from his/her borrower for the privilege of seeking loan.

·        An interest rate is the percentage rate at which the lender charges the interest on the money loaned.

·        The amount of interest, expressed as percentage, charged on the payment of loan per month.

·        An interest rate is the percentage of the loan’s principal amount that is charged for using that loan. This amount is taken into consideration while determining the monthly payments.[br]

Interest Rates Definition: Related Terms

Here are some other related interest rate terms:

 

Interest Rate Cap: It is the maximum interest rate that can be charged on the per month payment of an adjustable rate mortgage, during the period of adjustment.

Interest Rate Ceiling: It is the highest interest rate that can be charged on an adjustable rate mortgage.

Compound Interest: It is the interest that is charged on the new principal that comes after adding all unpaid interest to the principal amount of loan.