Interest (finance) financial definition of Interest (finance). Interest (finance) finance term by the Free Online Dictionary.

Interest

The price paid for borrowing money. It is expressed as a percentage rate over a period of time and reflects the rate of exchange of present consumption for future consumption. Also, a share or title in property.

Interest

Money that is paid in exchange for borrowing or using another person's or organization's money. Interest is calculated as a percentage of the money borrowed. There are two kinds of interest, simple interest and compound interest. In simple interest, the interest is calculated only over the original principal amount. For example, if one borrows $1000 at 3% interest, the interest is $30 (3% of $1000) each time it is calculated. In compound interest, interest previously paid is included in the calculation of future interest. For example, with the above loan, interest paid in the first month is $30 (3% of $1000), in the second month it is $30.90 (3% of $1030), and so forth. Compound interest is more common because it yields more for the lender.

interest

1. Payment for the use of borrowed money.

2. An investor's equity in a business.

Interest. Interest is what you pay to borrow money using a loan, credit card, or line of credit. It is calculated at either a fixed or variable rate that's expressed as a percentage of the amount you borrow, pegged to a specific time period.

For example, you may pay 1.2% interest monthly on the unpaid balance of your credit card.

Interest also refers to the income, figured as a percentage of principal, that you're paid for purchasing a bond, keeping money in a bank account, or making other interest-paying investments.

If it is simple interest, earnings are figured on the principal. If it is compound interest, the earnings are added to the principal to form a new base on which future income is calculated.

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