An interest rate is a percentage charged or earned on a loan, investment, or debt. It represents the cost of borrowing money or the return earned on an investment over a specific period of time. Interest rates are expressed as a percentage and are typically applied annually. However, they can be compounded more frequently (e.g., monthly or daily) depending on the terms of the loan or investment. The interest rate determines the interest borrowers or lenders pay based on the principal amount involved.