Interest rate derivative

When you borrow money, the bank or other lender will charge you interest, which is a fee for using their money. Sometimes it's hard to predict how much the interest rate will be, so people use something called an interest rate derivative to help them. This is like an insurance policy for interest rates - you buy the derivative, and if the rate goes up, you're protected. If the rate goes down, it doesn't matter, because you've already bought the derivative. This way, you know what your interest rate will be in advance, so you can plan for it.