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Interest
"Interest" is compensation for the use of money and can serve to either cost an individual additional funds or to produce additional funds. In instances of an individual taking out a loan for any purpose, the actual amount of the loan is referred to as the "principal." In the negotiation of the terms of the loan, a percentage is decided which is applied to that amount and is payable as an aspect of the periodic loan payments.
This percentage, or interest, is compensation to the lender for deferring his own use of the funds. Interest represents the profit a lender accrues from making the loan and to the loan holder is the "fee" they pay for borrowing the money.
In an investment scenario, an individual places funds in an interest earning vehicle and is rewarded for deferring the use of the money for the length of the investment. In this event, however, interest is not a fee on the money to the individual but a monetary award.
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