What is Interest (I) in loan terms?

What is Interest (I) in loan terms?

• A. The money the borrower pays the lender for the use of the lender's money
• B. The amount of the loan originally borrowed
• C. The total principal outstanding
• D. The monthly payment made by borrower

Answer: (A)

Interest is the price charged by the lender for the use of the lender's money. It's the cost of borrowing and is typically expressed as a percentage of the outstanding loan balance (the principal) over a period, usually annually as the APR. In an amortizing loan, each monthly payment covers both interest on the current balance and a portion of the principal. At the start, a larger share of the payment goes to interest, and as the balance decreases, more of the payment reduces principal. This distinguishes interest from the amount borrowed (the principal) and from the total principal outstanding (the current balance) as well as from the monthly payment, which is the sum of interest and principal. For example, on a $200,000 loan at 5% annual interest, the first month accrues about $833 in interest, with the remainder of the payment reducing the principal.

Interest is the price charged by the lender for the use of the lender's money. It's the cost of borrowing and is typically expressed as a percentage of the outstanding loan balance (the principal) over a period, usually annually as the APR. In an amortizing loan, each monthly payment covers both interest on the current balance and a portion of the principal. At the start, a larger share of the payment goes to interest, and as the balance decreases, more of the payment reduces principal. This distinguishes interest from the amount borrowed (the principal) and from the total principal outstanding (the current balance) as well as from the monthly payment, which is the sum of interest and principal. For example, on a $200,000 loan at 5% annual interest, the first month accrues about $833 in interest, with the remainder of the payment reducing the principal.