Interest: Meaning and Types of Borrowing Fees
Interest: What Is Interest and Types of Borrowing Fees When we borrow funds—from a bank, a friend, or a financial institution—we typically pay more than we borrowed. That extra money is referred to as interest. Simply put, interest is the price of borrowing money. Just like we pay rental for occupying a house, we pay interest for utilizing someone else's money. Let's dig deeper. ???? What Is Interest? Interest is the payment or fee that a lender (such as a bank) charges the borrower (you or a business) for providing funds. It is often a percentage of the amount lent, and is paid back over time until the entire amount is paid back. For instance: If you take ₹10,000 from a bank at an annual interest rate of 10%, then you will owe ₹1,000 in interest within one year—over and above the ₹10,000 you're returning. ???? Why Lenders Ask for Interest There are three reasons why lenders ask for interest: To earn profit – Money lending is a business. To recover risk – There's always...