What is 'Interest'
Interest is the charge for the privilege of borrowing money, typically expressed as annual percentage rate.Â Interest can also refer to the amount of ownership a stockholder has in a company, usually expressed as a percentage.
BREAKING DOWN 'Interest'
There are two main types of interest that can be applied to loans:Â simple and compound. Simple interest is a set rate on the principle originally lent to the borrower that the borrower has to pay for the ability to use the money. Compound interest is interest on both the principle and the compounding interest paid on that loan. The latter of the two types of interest is the most common.
Some of the considerations that go into calculating the type of interest and the amount a lender will charge a borrower include opportunity cost (the cost of the inability of the lender to use the money theyâ€™re lending out), the amount of expected inflation, the risk that the lender is unable to pay the loan back because of default, the length of time that the money is being lent out for, the possibility of government intervention on interest rates, and the liquidity of the loan being made.
A quick way to get a rough understanding of how long it will take in order for an investment to double is to use the rule of 72. Divide the number 72 by interest rate 72/4 for instance, and youâ€™ll double your investment in 18 years.Â
History
This cost of borrowing money is considered commonplace today, however the wide acceptability of interest became common only during the Renaissance.
Interest is an ancient practice; however, social norms from ancient Middle Eastern civilizations, to Medieval times regarded charging interest on loans as a kind of sin. This was due, in part because loans were made to people in need, and there was no product other than money being made in the act of loaning assets with interest.Â
The moral dubiousness of charging interest on loans fell away during the Renaissance. People began borrowing money to grow businesses in an attempt improve their own station. Growing markets and relative economic mobility made loans more common, and made charging interest more acceptable. It was during this time that money began to be considered a commodity, and the opportunity cost of lending it was seen as worth charging for.Â
Political philosophers in the 1700sÂ and 1800s elucidated the economic theory behind charging interest rates for lent money, authors included Adam Smith, FrÃ©dÃ©ric Bastiat, and Carl Menger. Some of those titles included the Theory of Fructification by AnneRobertJacques Turgo, and Interest and prices by Knut Wicksell.Â
Iran, Sudan, and Pakistan removed interest from their banking and financial systems, making it so lenders partner in profit and loss sharing instead of charging interest on the money they lend. This trend in Islamic banking â€“Â refusing to take interest on loans â€“Â became more common towards the end of the 20th century.Â

Interest Rate
The amount charged, expressed as a percentage of principal, by ... 
Interest Cost
The cumulative sum of the amount of interest paid on a loan by ... 
Interest Rate Ceiling
The maximum interest rate that a financial institution can charge ... 
Periodic Interest Rate
The interest rate charged on a loan or realized on an investment ... 
Simple Interest
A quick method of calculating the interest charge on a loan. ... 
ClosedEnd Credit
A loan or extension of credit in which the proceeds are dispersed ...

Markets
Explaining Interest
Interest is the price charged to borrow money, and is typically expressed as a percentage of the principal, or the amount loaned. 
Markets
Forces Behind Interest Rates
Get a deeper understanding of the importance of interest rates and what makes them change. 
Markets
Simple Interest Loans: Do They Exist?
Yes, they do. Here is what they are â€“ and how to use them to your advantage. 
Markets
Simple Interest
Simple interest is a quick method of calculating the interest charged on a loan. Simple interest is determined by multiplying the interest rate by the principal by the number of periods. 
Markets
Forces Behind Interest Rates
Interest is a cost for one party, and income for another. Regardless of the perspective, interest rates are always changing. 
Investing
Lending Clubs: Better Than Banks?
If you need to borrow money and your credit is making it tough, this new option may be just what you're looking for. 
Personal Finance
The Difference Between Compounding Interest and Simple Interest
Interest is the cost a borrower pays to use someone elseâ€™s money. Interest can be either simple or compounded. 
Markets
How Banks Set Interest Rates on Your Loans
Many factors go into how banks set interest rates for loans. Use this information to negotiate the best possible rate when you're borrowing. 
Investing
Different Needs, Different Loans
Find out what options are available when it comes to borrowing money. 
Managing Wealth
4 Ways Simple Interest Is Used In Real Life
Simple interest works in your favor when you're a borrower, but against you when you're an investor.

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