An interest rate is defined as the proportion of an amount loaned which a lender charges as interest to the borrower, normally expressed as an annual percentage. It is the rate of a bank or other lender charges to borrow its money or the rate a bank pays its savers for keeping money in an account.
Interest rates are commonly used for personal loans and mortgages, though they may extend to loans for the purchase of cars, buildings and consumer goods.
Lenders typically offer lower interest rates to borrowers who are low-risk, and higher rates to high-risk borrowers. While lenders typically set their own rates, competition for borrowers means lenders within a certain area usually offer comparable numbers.
Aside from a borrower’s risk assessment, several outside factors may influence current interest rates. These typically include inflation, lower money supply or a high demand for credit.
When interest rates rise, the economy may worsen due to a lack of affordable credit. Interest rates can influence corporate profits and government monetary policies.