Any sum of money provided as a loan, or deposited in an account, is called “principal” or “the amount of the principal”. All the explanations and examples in this ebooks concern loans, but they are also valid for deposits.

## What is Interest Rate?

The word rate is used in the services sectors.

Rate is the synonym for the price of an accepted measurement unit.

Examples:

1. In auto repair businesses, an accepted measurement unit is one work-hour. Instead of saying that the cost of one work-hour is \$100, we say that the rate is \$100 per work-hour. If work in a garage continues for two and a half hours, the price will be \$250.

2. At Vodafone, the accepted measurement unit is a call-minute (or one tick of the meter). Instead of saying that the price of a call -minute is \$0.20, we say that the rate is \$0.20 per call-minute. If we have spoken for 10 minutes, the price will be \$2. The word rate is used in the services sectors. Rate is the synonym for the price of an accepted measurement unit. In terms of loans, the accepted measurement unit is a year. Instead of saying that the price of a one-year loan is 8% interest, we say that the loan rate is 8% per year, or simply that the loan rate is 8%. Everyone understands that the rate relates to a one – year loan, and that 8% refers to 8% interest. If we have received a half-year loan, we will pay only half of 8%.