Posted in Finance, Accounting and Economics Terms, Total Reads: 1580

Definition: Interest

Interest can be defined as the amount that is paid as a fee or received as a compensation for the use of borrowed assets.

Examples of such assets can be money lent to a bank as deposited funds or borrowed from a bank as a loan; goods taken on rent; financial leases, etc.


As an example, if one borrows an amount of 100 INR from a bank for a specified period, and pays 110 INR to the bank at the end of the period, the user is said to have paid an interest of 10 INR that can be calculated as follows,

Principal amount received = 100 INR

Amount paid at end of period  = 110 INR

Interest = Amount paid – Principal amount received = 110 – 100 = 10 INR

On the other hand, if one invests an amount of 100 INR as a fixed deposit in a bank and receives an amount of 110 INR after the specified period, the interest amount received is 10 INR calculated by the same formula as above.

Hence, this concludes the definition of Interest along with its overview.

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