An interest rate is the percentage of the principal amount that a borrower pays as interest on a loan. It is a cost of borrowing money and is typically expressed as an annual percentage rate (APR). The interest rate is determined by various factors, including the borrower's creditworthiness, the type and duration of the loan, market conditions, and the lender's policies. It is not a loan add-on or required bank fee, but rather the cost incurred by the borrower for using the lender's funds.