Interest is the payment made for the use of money. The interest rate is the amount of interest paid per unit of time expressed as a percentage of the amount borrowed. In other words, people must pay for the opportunity to borrow money. Some examples will illustrate how interests works:
1. When you graduate from college, you have $500 to your name. You decide to keep it in currency. If you spend none of your funds, at the end of a year you still have $500 because currency has a zero interest rate.

2. You place $2000 in a savings account in your local bank, where the interest rate on savings accounts is 4 percent per year. At the end of 1 year, the bank will have paid $80 in interest into your account, so the account is now worth $2080.

3. You start your first job and decide to buy a small house that costs $100,000. You go to your local bank and find that 30 years fixed interest rate mortgages have an interest rate of 10 percent per year. Each month you make a mortgage payment of $877.58. Note that this payment is a little bit more than the pro-rated monthly interest charge of 10/12 percent per month. Because it includes not only interest but also amortization. This is repayment of principal, the amount borrowed. By the time you have made your 360 monthly payments, you will have completely paid off the loan.