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Interest Rate – it represents the cost of the money. In case of lending, it is expressed as a percentage of principal. It is applied by a lender to a borrower for the use of assets. Anyone can lend money and charge interest, but it’s usually banks or other financial institutions.
Banks will also charge higher interest rates if they think there’s a lower chance the debt will get repaid. The total interest on an amount lent or borrowed depends on the principal sum, the interest rate, the compounding frequency, and the length of time over which it is lent, deposited or borrowed. In case of deposits, banks pay interest rates on deposits to encourage people to make deposits; Financial Institutions use the deposits from savings or checking accounts to fund loans. This explains why the interest rates on current accounts are lower than the interest rate on credit.