What is interest?


Interest in the context of credit is the charge for the privilege of borrowing money. The amount charged is usually a percentage of the total amount borrowed computed annually. If Thomas E. borrows $1,000 from Nikola T., Nikola might charge Thomas 5% per year for the privilege. Therefore after one year Thomas would owe Nikola $1,000 + $50 interest calculated by multiplying $1,000 x 5%.

Written on August 24, 2016