Financial Terms / I - J / Interest Rate

Interest Rate

The interest rate is the percentage of the principal a lender charges the borrower. If a loan has an interest rate of 7% for one year, then you have to pay back the principal plus an amount corresponding to 7% of the principal as interest. 

Interest rates show how cheap or expensive it is to lend (save) or borrow in an economy. Generally, low-interest rates increase borrowing and spending in an economy, while high-interest rates decrease spending and borrowing.