What is interest

Interest is the price that someone pays for the temporary use of someone else’s funds. Interest can also be said to be the compensation that someone receives for temporarily giving up the abilityto spend money. Without interest, lenders wouldn’t be willing to lend, or to temporarily give up the ability to spend, and savers would be less willing to defer spending. To repay a loan, a borrower has to pay interest, as well as the principal, the amount originally borrowed.When money is advanced by a bank, the borrower usually pays a price in consideration of the loan, to the bank, till it is repaid (to the bank). This price is called ‘Interest”. Similarly, a bank pays interest at agreed rates on deposits accepted by it.