Interest refers to the cost of borrowing money or the return on investment (ROI) for a lender or investor. It is calculated as a percentage of the principal amount (the loan or investment amount). Typically interest accumulates over time, allowing the total sum to grow.

For instance, if you take out a loan, the cost you pay to borrow that money is interest. Similarly, if you deposit money in a savings account, the return you earn on that deposit is also considered interest. The interest rate can be fixed (always stays the same) or variable (changes with market conditions).

## Related Questions

**1. What is Principal Amount?**

The principal amount is the original sum of money borrowed in a loan, or invested, on which interest is calculated.

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**2. What are Fixed and Variable Interest Rates?**

Fixed interest rate stays the same for the duration of the loan term. Variable interest rate, on the other hand, changes depending on market conditions.

**3. How is interest calculated in simple terms?**

Simple interest is calculated by multiplying the principal amount, interest rate, and the time the money is borrowed or invested for. The formula is I=PRT, where I is the interest, P is the principle, R is the rate, and T is time.

**4. What is compound interest?**

Compound interest is interest on a loan or deposit calculated on both the initial principal and the accumulated interest from previous periods. It makes a sum grow at a faster rate than simple interest, which is calculated only on the principal amount.

**5. What is APR (Annual Percentage Rate)?**

APR is the yearly interest rate charged on a loan including any fees or additional costs associated with it. It gives a clear picture of the true cost of borrowing.