What do we call the percentage of the loan that must be paid back in addition to the principal amount borrowed?

The percentage of the loan that must be paid back in addition to the principal amount borrowed is referred to as interest rates. When a borrower takes out a loan, they agree to pay back not only the original amount borrowed (the principal) but also an additional cost for accessing that money, which is determined by the interest rate.

The interest rate is expressed as a percentage of the loan amount and represents the cost of borrowing. For example, if you borrow $1,000 at an interest rate of 5% per year, you will need to pay back the principal amount along with an additional $50, which is the cost associated with borrowing that money over the loan period.

Understanding interest rates is crucial because they significantly impact the total cost of a loan, affecting monthly payments and the overall amount paid throughout the life of the loan. This concept is key in personal finance as it influences financial decisions related to loans and credit.