Simple Definition
Interest rate is the cost of borrowing expressed as a percentage of the loan amount. It may be fixed or floating depending on the loan product.
Why It Matters
A lower interest rate can reduce EMI and total repayment cost, but borrowers should also compare fees and terms.
Example
A personal loan at 12% annual interest will generally have a higher EMI than the same loan amount and tenure at 10%, assuming other terms are the same.
FAQs on Interest Rate
Is the lowest interest rate always best?
Not always. Processing fees, tenure, eligibility and service quality should also be considered.
Who decides the interest rate?
The lender decides based on policy, borrower profile, credit history, income and product type.