Interest is the cost of borrowing money. The interest rate is the rate at which youÂ’ll be charged for that money. Because you borrowed the money, they want to earn a bit of cash for loaning it to you, so theyÂ’ll charge you interest. That rate can be a fixed rate (letÂ’s say 3% over the length of your loan) or a variable rate.
Example: If you take out a loan from a bank for $1,000 at a simple 3% interest rate and the length of the loan is one year, youÂ’d owe them the $1,000 back at the end of the year plus $30 in interest.
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