Interest Rate

Definition - What does Interest Rate mean?

An interest rate is the rate at which a borrower must pay a fee to a lender for the use of borrowed funds. This rate is usually a percentage of the total amount of the loan. Lenders charge interest on loans they give in order to make a profit. The interest rate helps to determine how much profit they will make on their loans.

In the context of the law, most loans and their accompanying interest rates are legally binding once the borrower agrees to them.

Justipedia explains Interest Rate

Interest rates can vary significantly. For example, rates on consumer credit are often as high as 15%. However, other types of loans may be as low as 3 or 4%.

A $1,000 loan that has an annual interest rate of 10% will mean that the borrower will have to pay $100 in interest every year in addition to repaying the loan. Loans with high interest rates can quickly add up and cause the borrower to owe a lot of money. This is why many borrowers seek loans with lower interest rates.

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