Which term refers to the cost paid to lenders for borrowing money?

The term that refers to the cost paid to lenders for borrowing money is the interest rate. This rate is typically expressed as a percentage and represents the cost of borrowing funds. Lenders charge interest as a way to compensate for the risk they take by lending money and to account for inflation and the opportunity cost of not using that money elsewhere.

In practical terms, when an individual or a business borrows money from a lender, they agree to pay back the original amount borrowed, known as the principal, plus a specified amount of interest over time. The interest rate can vary based on several factors, including the borrower's creditworthiness, market conditions, and the type of loan.

Understanding the concept of the interest rate is crucial for borrowers, as it affects monthly payments and the total amount repaid over the life of a loan. Low interest rates can make borrowing more attractive, while high rates may discourage borrowing or increase the overall cost of loans.