Interest

In finance, interest has three general definitions.

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• Interest is a surcharge on the repayment of debt (borrowed money).
• Interest is the return derived from an investment.
• Interest is the right to one's claim in a corporation, such as that of an owner or creditor.

This article covers the first definition listed above.

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Economists sometimes refer to interest as rent on money. As with any rental, the market price (or rate) is subject to change to reflect market conditions. The fraction by which the balances grow is called the interest rate. The original balance is called the principal. Interest rates are very closely watched market indicators, and have a dramatic effect on finance and economics.

Related Topics:
Economists - Rent - Market - Interest rate - Principal - Market indicator - Finance

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The fact that lenders demand interest for loans in capitalist countries can be attributed to the following reasons:

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• Time value of money or time preference
• (TVM: Having money now is more valuable than having it at some future time because interest is earnt)
• (TP: Interest is the value borrowers place on having money now)
• Opportunity cost
• (OC: The cost in terms of options no longer available once one particular option is chosen)
 
Interest: History ►