Interest payment - Financial definition
Concise definition of the term interest payment
An interest payment is the amount paid by a borrower to a lender as compensation for the use of borrowed money. It is typically expressed as a percentage of the principal loan amount.
Comprehensive definition of the term interest payment
Interest payments are crucial in the context of loans, bonds, and other financial instruments, reflecting the cost of borrowing funds over time. For example, homeowners pay interest on their mortgages, which can be fixed or variable depending on the loan terms. Companies issue bonds to raise capital, agreeing to pay bondholders periodic interest, known as coupon payments.
Interest rates are influenced by various factors, including central bank policies, inflation expectations, and market conditions. In banking, interest payments on savings accounts provide income to depositors, incentivizing savings and affecting overall economic activity. Understanding interest payments is essential for managing debt and investment strategies, as they impact cash flows, profitability, and financial planning.