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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AddOn Interest
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Periodic Interest Rate
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Compound Interest
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Compounding
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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
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. 
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
The Effective Annual Interest Rate
The effective annual interest rate is a way of restating the annual interest rate so that it takes into account the effects of compounding. 
Investing
The Interest Rates: APR, APY And EAR
When most people shop for financial products, all they focus on is the listed interest rate. Human eyes instinctively dismiss the fine print, which usually includes the terms APR (annual percentage ... 
Investing
How Do Interest Rates Affect the Stock Market?
Interest rates can have a complicated ripple effect through financial markets. Here's what you need to know. 
Investing
Interest Rates Explained: Nominal, Real, Effective
Interest rates are divided into subcategories. Smart investors look beyond the nominal or coupon rate of a bond or loan to see if it fits their objectives. 
Personal Finance
How Interest Rates Work on Savings Accounts
Here's what you need to know to grow your rainyday fund.

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