Interest rate

Imagine you want to borrow some money from a friend. Your friend says they will lend you the money, but you have to promise to give them a little bit extra money back every week/month until you pay the full amount back. That little bit of extra money is the interest rate.

Interest rate is the percentage of extra money a borrower has to pay back on top of the money they borrowed.

For example, if you borrowed $100 from your friend and agreed to pay back 10% interest rate, you would have to give your friend $110 back in total ($100 you borrowed + $10 interest).

Interest rate is also used by banks when they loan money to people or businesses. When you take out a loan, you agree to pay back the money you borrowed plus a little extra every month, which is the interest rate. The interest rate could be high or low depending on different factors like your credit score, how much you're borrowing, and how long you'll take to pay it back. A high interest rate means you'll have to pay more money back, while a low interest rate means you'll have to pay less back.

Interest rate can also affect the economy. For example, if the government lowers the interest rate, it can encourage people to borrow more money because it becomes cheaper. This can help boost the economy. On the other hand, if the interest rate is too high, it can discourage people from borrowing money and slow down the economy.