Interest is the monetary charge paid by a borrower to a lender for the use of borrowed money, usually expressed as a percentage of the principal amount, called the interest rate. It represents the cost of borrowing money or the reward for lending money or saving, and it compensates the lender for the risk and opportunity cost of lending the funds. Interest can be simple (based only on the principal) or compound (calculated on both the principal and accrued interest).
In essence, when borrowing money, one repays the original amount plus interest; when saving or investing money, one earns interest as a return.
