What is defined as the percentage charged on loans or paid on investments?

The concept of the percentage charged on loans or paid on investments is known as the interest rate. This rate indicates the cost of borrowing money or the return on investment from savings or other financial assets.

When you take out a loan, the lender charges you an interest rate, which is usually expressed as an annual percentage. This is the additional amount you’ll pay back over the principal amount borrowed. Conversely, when you invest money, the interest rate represents the return you earn on that investment.

Understanding the interest rate is fundamental in personal finance as it affects decisions on borrowing, saving, and investing. For instance, a higher interest rate on a loan means you will pay more over time, while a higher interest rate on savings or investments means you will earn more over time.

The other choices relate to different financial concepts: the loan-to-value ratio is a measure used in mortgage underwriting to assess risk, the annual percentage rate encompasses both the interest rate and any additional costs associated with borrowing, and dividends are payments made to shareholders from a corporation's profits. None of these alternatives effectively describe the basic concept of interest rates as it pertains to loans and investments.