What is Interest?

Interest is the cost of funds loaned to an entity by a lender . This cost is usually expressed as a percentage of the principal on an annual basis. Interest can be calculated as simple interest or compound interest , where compound interest results in a higher return to the investor . Depending on the tax laws of the applicable government entity, interest expense is tax deductible for a borrower .

The interest concept can also refer to the equity ownership by an investor in a business entity. An investor has a controlling interest in a business with ownership of any amount exceeding 50% of its outstanding common stock .