Interest
Definition
Interest refers to the cost of borrowing money or the return on investment. It is the amount paid by a borrower to a lender, or earned by an investor from their investments.
Analogy
Think of interest as the "rent" you pay for using someone else's money. Just like you pay rent to live in someone else's property, you pay interest to use someone else's money.
Related terms
Principal: The initial amount of money borrowed or invested, before any interest is added.
Compound Interest: Interest that is calculated not only on the initial principal but also on any previously accumulated interest.
Nominal Interest Rate: The stated interest rate without considering inflation or compounding effects.
"Interest" appears in:
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Study guides (1)
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