Interest (Loan Context)
The cost paid by a borrower for the use of loaned funds.
Detailed Description
Interest (Loan Context)
What is interest in the context of loans?
Interest is the cost of borrowing money, typically expressed as a percentage of the principal amount borrowed.
What are the two main types of interest?
The two main types are simple interest and compound interest.
What is the difference between fixed and variable interest rates?
Fixed interest rates remain constant throughout the loan term, while variable rates can fluctuate based on market conditions.
How is interest on loans calculated?
Interest is calculated using the formula: Interest = Principal × Rate × Time.
Why is a borrower's credit score important?
A credit score influences the interest rate offered, with higher scores usually resulting in lower rates.