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Interest rate is the amount charged, expressed as a percentage of principal, by a lender to a borrower for the use of assets. Interest rates are typically noted on an annual basis, known as the annual percentage rate (APR).

Interest is calculated as a percentage of a loan (or deposit) balance, paid to the lender periodically for the privilege of using their money. The amount is usually quoted as an annual rate, but interest can be calculated for periods that are longer or shorter than one year.

Interest is additional money that must be repaid — in addition to the original loan balance or deposit.

The rates are the sum of a uniform “index rate” plus an “add-on” that varies depending on the type of loan and the borrower’s grade level (undergraduate or graduate/professional). Once established, the rate applies for the life of the loan, meaning that these are fixed-rate loans. Since these rates can climb as general interest rates climb, Congress imposed maximum interest rates, which vary depending on the type of loan and on whether the borrower is an undergraduate or graduate student.

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