What is the term for the fee that is charged for borrowing money?

The term for the fee charged for borrowing money is interest. Interest is the cost of using someone else's money and is typically expressed as a percentage of the principal amount borrowed. When a borrower takes out a loan, they agree to pay back not only the principal, which is the original amount borrowed, but also the interest, which compensates the lender for the risk of lending and the opportunity cost of not being able to use that money elsewhere.

Interest can vary based on several factors, including the borrower’s creditworthiness, the type of loan, and current market conditions. It is calculated over the life of the loan and can be computed using different methods, illustrating the crucial role interest plays in loan agreements. Understanding interest is essential for borrowers to accurately assess the total cost of borrowing and make informed financial decisions.