Suppose that you lent $100 to a friend and he or she paid you back one year later. What was the cost of lending your friend this money?

The interest rate is the amount of the interest expressed as a percentage of the principal. Thus, if someone lends you $100 and you agree to repay him $110 a year later, the interest rate is 10%, which equals the interest divided by the principal, or ($110-$100) / $100.