Business glossary
Interest rate
The percentage used to calculate interest on borrowed or invested money.
Example
At a simple annual rate of 6%, $1,000 outstanding for a full year produces $60 interest before fees. Different payment timing, compounding or day-count methods change the calculation.
How it differs from related terms
An annual interest rate is not the same as APR or a flat fee. State the rate period, principal, calculation method and relevant fees. Use an actual repayment schedule to understand a reducing loan balance.
Frequently asked questions
What is an example of interest rate?
At a simple annual rate of 6%, $1,000 outstanding for a full year produces $60 interest before fees. Different payment timing, compounding or day-count methods change the calculation.
How should interest rate be interpreted?
An annual interest rate is not the same as APR or a flat fee. State the rate period, principal, calculation method and relevant fees. Use an actual repayment schedule to understand a reducing loan balance.