- The percentage of a principal amount is called the interest rate
- Denoted in formulas by an r, and is converted to its decimal equivalent for computing purposes
- With respect to loans, the interest rate is a factor in computing how much it will cost a borrower to borrow money, and how much a lender will earn to lend money
- If the rate increases, the cost for a borrower to borrow money goes up, and as a result, the amount earned by the lender also goes up if all other factors stay the same such as the term of the loan
- Application: Computing monthly auto loan payment