Question

Explain what the interest rate is!

Answer 1

Interest rate refers to the percentage of principal amount which the borrower has to pay periodically against the principal amount (or, loan) received by the lender. It has to be applied whenever borrowing and lending is concerned and is given as the additional amount along with the principal amount by the borrower to the lender for the privilege of using its money after a specified period of time. There are different types of interest rates like flat interest rate, fixed interest rate, reducing or diminishing interest rates, variable or floating interest rate, etc.

There are various factors which affects the interest rates like loan size, loan type, period of time for which loan is needed, frequency of payments, borrower’s credit score, etc. Interest rates can be paid after the time interval like annually, semi- annually, quarterly, monthly and so on.