What is the term for the amount a lender charges for the use of its money?

The term that signifies the amount a lender charges for the use of its money is interest. In the context of loans, interest represents the cost of borrowing, which is often expressed as a percentage of the principal amount over a specified period. This charge compensates the lender for the risk of lending their funds and for the opportunity cost of not using that money elsewhere.

Interest can take various forms, such as fixed or variable rates, and is a fundamental aspect of all lending agreements. It is crucial for borrowers to understand how interest works, as it directly affects the total cost of a loan over time. By distinguishing interest from other terms like principal, which refers to the original sum of money borrowed, or amortization, which describes the repayment process of a loan over a schedule, one can better comprehend the financial obligations that come with borrowing.