What is Interest?
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Interest is, simply, the amount added to a certain price as the cost of borrowing money. In another light, interest may also be the earnings gained to owners of capital and other investments. It is usually defined as a percentage of the amount involved in either the borrowing or the investing (lending), called the interest rate. Rates are normally defined as a percentage within a year.
Some Definitions
The amount to which interest is added is called the principal.
Any item that gains or adds interest is considered interest-bearing.
The annual percentage rate or APR is the amount of yearly costs over the period of a loan, including additional fees involved, and is useful for comparing borrowing rates among different lenders.
The annual percentage yield or APY is also a percentage rate that estimates investment return and takes into account compounding.
To understand how interest works or why interest exists, one must cover all the aspects in which interest plays a part to get a better view of the whole picture, or one may also choose to specialize in a certain topic to which interest may also belong. Definitions, formulas, and even hints about possible choices you have to make in different endeavors involving interest can be found in the following articles:
Find out about the origins of interest in A Brief History of Interest and see how it is affected in Interest Rates and the Flow of Money. Find out the different types of interest in Simple and Compound Interest and Fixed, Variable, Nominal, Real Interest. Learn the Risks that are associated with interest.
Next, dive into the nitty-gritty of where interest rates can be applied and its sub-sections: Investing, Borrowing, Banking, and Income Taxes.
Finally, check out our helpful Interest Tools in Interest Software and Interest Calculators.
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