Definition
Interest
Interest is the cost of borrowing money, expressed either as a regular payment or as a percentage rate. When you borrow, you repay the original amount (the principal) plus interest.
Example
Borrowing £1,000 at 10% interest per year means you owe £100 in interest after 12 months, before any principal repayment.
Common misunderstandings
- Interest is charged on the outstanding balance — as you repay the principal, the interest charged reduces.