Definition
The percentage charged on a loan or earned on an investment. It determines how much extra you pay or earn over time.
What to consider
- Use this ratio to see how well a company can cover its interest payments.
- Compare it with industry averages for perspective.
- Review the company’s financial statements for a deeper look.
Real world scenarios
- Juan carefully checks the interest rates on personal loans, aiming to pick the lowest possible cost for his wedding expenses.
- Camila’s variable-rate student loan payment rises slightly when the prime rate increases, reminding her to review refinancing options.
- Heidi moves her credit card debt to a lower-rate offer, saving money on interest each billing cycle.
Related terms
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