Quick Definition

An interest rate is the percentage of principal charged by the lender for the use of its money. The interest rate on a loan or deposit determines how much you will pay or earn over time.

Formula

Examples

• 1A bank offers a 2% interest rate on a savings account, meaning your money grows by 2% annually based on the deposited amount.
• 2When taking out a $10,000 loan with an annual interest rate of 5%, you will pay $500 in interest per year.
• 3Credit card companies charge interest on unpaid balances, so if you have a $1,000 balance with a 20% annual interest rate, you'll incur $200 in interest charges if the balance remains unpaid for a year.

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