Interest rate

Interest rate

An interest rate is the percentage of principal that is charged as interest for its use by the lender. An interest rate is typically defined as an annual percentage of the borrowed principal and is calculated by dividing the amount of interest by the amount of principal.


Interest Rate = Amount of Interest / Principal
Amount of Interest = Interest Rate x Principal


For example, if the interest rate is %5 for $100,000 loan
Amount of Interest = (5 / 100) x 100,000 = $5,000 for each year.

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