interest

Interest is the extra money a borrower pays back to a lender for the privilege of using the lender’s money for a period of time.

• Why it is paid: the lender is giving up the chance to use that money elsewhere, and there is also a risk that the borrower may not repay fully or on time.
• How it is usually calculated: interest is often a percentage of the amount borrowed (the principal) and depends on the interest rate and the time period of the loan.
• Simple example: if someone borrows ₹10,000 at 10% interest for one year, the interest for that year is ₹1,000 (so they repay ₹11,000 in total, if it is simple interest).
• What changes the interest rate: safer borrowers may get lower rates; riskier loans usually have higher rates. Rates can also rise or fall depending on the overall economy and banking policies.
• Why it matters for a business: interest is a cost of borrowing. If a business earns enough profit to cover interest and still grow, a loan can help it expand; if not, debt can become a burden.

Interest is one way money itself becomes part of capital: it connects savings and banks to business activity by rewarding lending and charging borrowing.