Expert: date=January 2009

Interest is a fee paid on borrowed assets. It is the price paid for the use of borrowed money , or, money earned by deposited funds . Assets that are sometimes lent with interest include money, shares, consumer goods through hire purchase, major assets such as aircraft, and even entire factories in finance lease arrangements. The interest is calculated upon the value of the assets in the same manner as upon money. Interest can be thought of as "rent of money". For example, if you want to borrow money from the bank, there is a certain rate you have to pay according to how much you want loaned to you.

Interest is compensation to the lender for forgoing other useful investments that could have been made with the loaned asset. These forgone investments are known as the opportunity cost. Instead of the lender using the assets directly, they are advanced to the borrower. The borrower then enjoys the benefit of using the assets ahead of the effort required to obtain them, while the lender enjoys the benefit of the fee paid by the borrower for the privilege. The amount lent, or the value of the assets lent, is called the principal. This principal value is held by the borrower on credit. Interest is therefore the price of credit, not the price of money as it is commonly believed to be.Fact: date=September 2008 The percentage of the principal that is paid as a fee (the interest), over a certain period of time, is called the interest rate.

History of interest

Interest is the price paid for the use of savings over a given period of time. In ancient biblical Israel, it was against the Law of Moses to charge interest on private loans .During the Middle Ages, time was considered to be property of God. Therefore, to charge interest was considered to be commerce with God's property. Also, St. Thomas Aquinas, the leading theologian of the Catholic Church, argued that the charging of interest is wrong because it amounts to "double charging", charging for both the thing and the use of the thing. The church regarded this as a sin of usury; nevertheless, this rule was never strictly obeyed and eroded gradually until it disappeared during the industrial revolution. Fact: date=January 2008

Usury has always been viewed negatively by the Roman Catholic Church. The Second Lateran Council condemned any repayment of a debt with more money than was originally loaned, the Council of Vienna explicitly prohibited usury and declared any legislation tolerant of usury to be heretical, and the first scholastics reproved the charging of interest. In the medieval economy, loans were entirely a consequence of necessity (bad harvests, fire in a workplace) and, under those conditions, it was considered morally reproachable to charge interest.Fact: date=January 2009

Interest has often been looked down upon in Islamic civilization as well for the same reason for which usury was forbidden by the Catholic Church, with most scholars agreeing that the Qur'an explicitly forbids charging interest. Medieval jurists therefore developed several financial instruments to encourage responsible lending.