Short definition: An interest rate is the percentage charged by a lender to a borrower for the use of money.
Explanation: It represents the cost of borrowing or the return on lending money. Interest rates are typically expressed as an annual percentage of the principal amount. They are influenced by various factors, including the central bank’s monetary policy, inflation, credit risk, and market demand.
Example: If you borrow $10,000 from a bank at an interest rate of 5%, you will need to pay $500 in interest per year.
Additional information (optional): Interest rates play a crucial role in the economy, affecting borrowing and investment decisions by businesses and individuals. They also impact the value of financial assets such as bonds and stocks.