Lending term
Interest Rate
The price of borrowed money
Definition
The percentage a lender charges for the use of borrowed money over a period, quoted before fees and separate from the total cost measure.
In more detail
Rates are built up from a reference cost of funds, a margin for the lender's operating costs and profit, and an adjustment for the risk that the loan is not repaid. Two applicants at the same lender can be quoted different rates purely because of that last component.
Fixed rates hold for a defined period; variable rates move with a benchmark or at the lender's discretion under the contract. The choice is about predictability rather than about which is cheaper in advance.
Example
A lender prices a mortgage at a benchmark rate plus a margin. If the benchmark moves and the product is variable, the monthly payment changes at the next reset date.
Glossary entries are general explanations, not advice. Where a term appears in a contract or policy, the definition in that document governs.