A rate which is charged or paid for the use of money and is often expressed in terms of annual percentage of the principal.

**Interest rate is of two types:**

- Simple Interest and
- Compound Interest

1.

**Simple Interest:** Simple interest can be found by multiplying the interest rate by the principle and by the number of periods.

2.

**Compound Interest:** Compound interest is paid on the original principal and on the accumulated past interest.

When money is borrowed from the bank we pay interest which is the percentage charged based on principal amount for certain duration.