What is the term for the amount of money lender charges borrowers for the use of their money?

The term describing the amount of money a lender charges borrowers for the use of their funds is interest. Interest represents the cost of borrowing and is typically expressed as a percentage of the principal amount over a specific period. This fee compensates the lender for taking on the risk of lending money and for foregoing the opportunity to use those funds elsewhere.

Interest can vary greatly based on several factors, including the creditworthiness of the borrower, the prevailing economic conditions, and the terms of the loan. Understanding the concept of interest is fundamental in finance and business, as it affects not only individual borrowers but also businesses and the overall economy.

Equity refers to ownership in an asset after all debts associated with that asset have been paid, and it is not related to the cost of borrowing. Loan principal is the original sum of money borrowed, which does not include any interest charges. Collateral is an asset pledged by the borrower to secure a loan, which can be forfeited if the loan is not repaid but does not relate to the cost of borrowing itself. Thus, the term that accurately defines the charge for borrowing money is interest.