What is 'Interest Rate'
Interest rate is the amount charged, expressed as a percentage of principal, by a lender to a borrower for the use of assets. Interest rates are typically noted on an annual basis, known as the annual percentage rate (APR). The assets borrowed could include, cash, consumer goods, large assets, such as a vehicle or building. Interest is essentially a rental, or leasing charge to the borrower, for the asset's use. In the case of a large asset, like a vehicle or building, the interest rate is sometimes known as the "lease rate". When the borrower is a lowrisk party, they will usually be charged a low interest rate; if the borrower is considered high risk, the interest rate that they are charged will be higher.
BREAKING DOWN 'Interest Rate'
Interest is charged by lenders as compensation for the loss of the asset's use. In the case of lending money, the lender could have invested the funds instead of lending them out. With lending a large asset, the lender may have been able to generate income from the asset should they have decided to use it themselves.
Using the simple interest formula:
Simple Interest = P (principal) x I (annual interest rate) x N (years)
Borrowing $1,000 at a 6% annual interest rate for 8 months means that you would owe $40 in interest (1000 x 6% x 8/12).
Using the compound interest formula:
Compound Interest = P (principal) x [ ( 1 + I(interest rate) ^{N} (months) )  1 ]
Borrowing $1,000 at a 6% annual interest rate for 8 months means that you would owe $40.70.
The interest owed when compounding is taken into consideration is higher, because interest has been charged monthly on the principal + accrued interest from the previous months. For shorter time frames, the calculation of interest will be similar for both methods. As the lending time increases, though, the disparity between the two types of interest calculations grows.

Interest
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Managing Wealth
Dissecting the Simple Interest Formula
Simple interest ignores the effect of compounding: it's only calculated on the principal amount. This makes it easier to calculate than compound interest. 
Investing
Forces Behind Interest Rates
Interest is a cost for one party, and income for another. Regardless of the perspective, interest rates are always changing. 
Insights
Forces Behind Interest Rates
Get a deeper understanding of the importance of interest rates and what makes them change. 
Investing
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. 
Investing
Learn Simple and Compound Interest
Interest is defined as the cost of borrowing money, and depending on how it is calculated, it can be classified as simple interest or compound interest. 
Personal Finance
Simple Interest Loans: Do They Exist?
Yes, they do. Here is what they are – and how to use them to your advantage. 
Insights
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. 
Investing
Understanding the Power of Compound Interest
Understanding compound interest is important for both investing and borrowing money. 
Investing
Calculating Future Value
Future value is the value of an asset or cash at a specified date in the future that is equivalent in value to a specified sum today. 
Insights
How Interest Rates Affect The U.S. Markets
Interest rates can have both positive and negative effects on U.S. stocks, bonds and inflation.

What is the difference between compounding interest and simple interest?
Simple interest is calculated by multiplying the principal amount by the interest rate and the number of periods in a loan. ... Read Answer >> 
How can I tell if a loan uses simple or compound interest?
Learn the differences between simple and compound interest and how you can use mathematical calculations and lender disclosures ... Read Answer >> 
What formula can I use to calculate interest on interest?
Find out more about compounding interest, what it measures and how to calculate the amount of compound interest accrued using ... Read Answer >> 
What are some examples of simple interest loans?
Learn about two common examples of simple interest loans. Understand what simple interest is and learn why it's important ... Read Answer >> 
What is the rationale behind the effective interest rate?
Read about the reasons why market actors identify the effective interest rate as it pertains to investing, lending and accounting. Read Answer >>