Interest Rate
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An Interest Rate is a rate at which interest is paid by borrowers (debtors) for the use of money that they borrow from lenders (creditors).
- Context:
- It can range from being a Nominal Interest Rate to being a Real Interest Rate.
- It can be defined as a percentage of the principal of a loan or a debt for specific time period.
- Example(s)
- Counter-Example(s)
- See: Annual Percentage Rate, Interest, Principal Sum, Monetary Policy, Investment.
References
2016
- (Investopedia, 2016) ⇒ http://www.investopedia.com/terms/i/interestrate.asp
- QUOTE: 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 low-risk 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.
2015
- (Wikipedia, 2015) ⇒ http://en.wikipedia.org/wiki/interest_rate Retrieved:2015-5-17.
- An interest rate is the rate at which interest is paid by borrowers (debtors) for the use of money that they borrow from lenders (creditors). Specifically, the interest rate is a percentage of principal paid a certain number of times per period for all periods during the total term of the loan or credit. Interest rates are normally expressed as a percentage of the principal for a period of one year, sometimes they are expressed for different periods like for a month or a day. Different interest rates exist parallelly for the same or comparable time periods, depending on the default probability of the borrower, the residual term, the payback currency, and many more determinants of a loan or credit. For example, a company borrows capital from a bank to buy new assets for its business, and in return the lender receives rights on the new assets as collateral and interest at a predetermined interest rate for deferring the use of funds and instead lending it to the borrower. A commercial bank can usually borrow at much lower interest rates from the central bank than the rate at which companies can borrow from the commercial bank. Interest-rate targets are a vital tool of monetary policy and are taken into account when dealing with variables like investment, inflation, and unemployment. The central banks of countries generally tend to reduce interest rates when they wish to increase investment and consumption in the country's economy. However, a low interest rate as a macro-economic policy can be risky and may lead to the creation of an economic bubble, in which large amounts of investments are poured into the real-estate market and stock market. In developed economies, interest-rate adjustments are thus made to keep inflation within a target range for the health of economic activities or cap the interest rate concurrently with economic growth to safeguard economic momentum. [1]
2008
- (MA DoR, 2008) ⇒ Massachussets DoR. (2008). “Municipal Finance Glossary.” Massachussets Department of Revenue - Division of Local Services
- QUOTE: Interest Rate – The interest payable, expressed as a percentage of the principal available, for use during a specified period of time. It is always expressed in annual terms.