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Interest

Definition

Interest is the additional amount of money that is paid back on top of the original borrowed amount, usually expressed as a percentage. It is the cost of borrowing or the return on lending.

Analogy

Think of interest like an extra topping on your favorite dessert. When you borrow money, it's like ordering a plain scoop of ice cream. But with interest, it's like adding sprinkles, chocolate sauce, and whipped cream – it makes the total amount you have to repay even sweeter!

Related terms

Principal: The original amount borrowed or invested.

Compound Interest: Interest that is calculated not only on the initial principal but also includes any accumulated interest from previous periods.

Annual Percentage Rate (APR): The annual interest rate charged by lenders which includes both nominal interest and any additional fees or charges associated with borrowing.