Interest

When we borrow money from lender, we are expected to pay lender as compensation for using it – this is known as Interest.

Interest is an amount charged to the borrower by the lender for the privilege of using the lender’s money. Interest is typically calculated as a percentage of the principal balance (the amount of money borrowed). The percentage rate may be fixed for the period of the loan, or it may be floating, depending on the terms and condition of the loan.

The factors which impacts these interest rates are mostly economy related and are commonly referred to as macroeconomic factors. Some of these are:
1. Demand for money
2. Level of Government borrowings
3. Supply of money
4. Inflation rate
5. The Reserve Bank of India and the Government policies which determine some of the variables mentioned above