What is the term for the cost of borrowing money?

The term for the cost of borrowing money is referred to as the interest rate. When individuals or businesses take out loans, they pay back the principal amount borrowed along with an additional amount known as interest. This interest is essentially the cost of the loan and is typically expressed as a percentage of the principal amount, charged on an annual basis. The interest rate reflects the cost to the borrower for using someone else's money, compensating the lender for the risk taken and the opportunity cost of lending their funds.

In financial contexts, understanding the distinction between interest rates and other terms related to loans is crucial. For instance, loan rate generally refers to the specific interest rate applicable to a particular loan agreement but does not encompass the broader concept of interest rates that can affect various types of loans and credit. Principal denotes the original sum of money borrowed or invested, excluding interest. Equity rate relates more to investments in equity, such as stocks, rather than the cost of borrowing.