Interest

Interest is the cost of funds loaned to an entity by a lender. This cost is usually expressed as a percentage of the principal on an annual basis. Interest can be calculated as simple or compound interest, where compound interest results in a higher return to the investor. Depending on the tax laws of the applicable government entity, interest expense is tax deductible for a borrower.

The interest concept can also refer to the equity ownership by an investor in a business entity.