wikiHow Calculating Interest Rate Glossary * Principal: The amount of money that is borrowed or invested. * Interest: The cost of borrowing money, expressed as a percentage of the principal. * Rate: The percentage of the principal that is charged as interest over a specific period of time, typically expressed annually. * Simple interest: A type of interest calculation that is based solely on the principal amount borrowed or invested, without compounding. * Compound interest: A type of interest calculation that includes the interest earned on the principal, as well as any interest that has been previously earned. * Annual percentage rate (APR): The interest rate charged on a loan or investment on an annual basis, including any fees or charges associated with the loan or investment. * Effective annual rate (EAR): The actual interest rate earned or paid on a loan or investment after taking into account compounding. * Nominal rate: The stated or advertised interest rate on a loan or investment, which may not take into account compounding. * Amortization: The process of paying off a loan over time through regular payments, which includes both the principal and interest. * Maturity: The date on which a loan or investment comes due, and the borrower or investor must repay the principal plus any interest that has accrued. Page