what is an interest rate 
the interest rate is the amount a lender charges a borrower and is a percentage of the principal the amount loaned the interest rate on a loan is typically noted on an annual basis and expressed as an annual percentage rate apr 1an interest rate can also apply to a savings account or certificate of deposit cd in this case a bank or credit union pays a percentage of the funds deposited to the account holder annual percentage yield apy refers to the interest earned on these deposit accounts 2investopedia julie bangunderstanding interest ratesinterest is essentially a charge to the borrower for the use of an asset assets borrowed can include cash consumer goods vehicles and property because of this an interest rate can be thought of as the cost of money higher interest rates make borrowing the same amount of money more expensive interest rates apply to most lending or borrowing transactions individuals borrow money to purchase homes fund projects launch or fund businesses or pay for college tuition businesses take out loans to fund capital projects and expand their operations by purchasing fixed and long term assets such as land buildings and machinery borrowed money is repaid either in a lump sum by a pre determined date or in periodic installments for loans the interest rate is applied to the principal which is the amount of the loan the interest rate is the cost of debt for the borrower and the rate of return for the lender the money to be repaid is usually more than the borrowed amount since lenders require compensation for the loss of use of the money during the loan period the lender could have invested the funds during that period instead of providing a loan which would have generated income from the asset the difference between the total repayment sum and the original loan is the interest charged 