Interest

Accounting Dictionary

Interest

Interest: an amount charged for the use of an asset for some period of time.

Interest is essentially a cost incurred to receive a benefit now, but pay for it later. For example, a student takes out a $5,000, one-year auto loan with a 10% interest rate to pay for a car. Over the course of the year, the student will make payments totaling $5,500. That $500 ($5,000 × 10%) difference essentially paid for the student to have access to a car for an entire year prior to fully paying for it.

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