interest rate

Definition

A rate which is charged or paid for the use of money. An interest rate is often expressed as an annual percentage of the principal. It is calculated by dividing the amount of interest by the amount of principal. Interest rates often change as a result of inflation and Federal Reserve Board policies. For example, if a lender (such as a bank) charges a customer $90 in a year on a loan of $1000, then the interest rate would be 90/1000 *100% = 9%.

From a consumer's perspective, the interest rate is expressed as annual percentage yield (APY) when the interested is earned, for example, from a savings account or a certificate of deposit. When the interest is paid, for example, for a credit card, a mortgage, or a loan, the interest rate is expressed as annual percentage rate (APR).

For more information, see: Difference Between Interest Rate and APR.

Use interest rate in a sentence

You should always shop around and try to find the best possible interest rate that you can find any where.

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With interest rates plummeting into the single digits, Roger felt now was the time to take out a loan and buy that gold VW he'd had his eyes on for 30 years.

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If the interest rate on a mortgage is fixed over the lifetime of the loan, economic conditions won't affect the nominal monthly payments, but the real monthly payments still depend on inflation.

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