How is interest rate defined?

The definition of interest rate is represented accurately by the choice indicating that it is the percentage charged on outstanding loan balances. This means that the interest rate reflects the cost of borrowing money, expressed as a percentage of the principal loan amount. Each time a borrower makes a payment on the loan, a portion of that payment goes towards paying off the accrued interest, which is calculated based on this percentage of the remaining loan balance.

The choice that refers to the overall cost of the loan encompasses many factors, including the interest rate and other fees, which makes it a broader definition than just the interest rate itself. Similarly, the option regarding the total amount of interest payable over the life of the loan describes a cumulative result of applying the interest rate over time but does not define the rate itself. Lastly, the option that states the sum of the principal plus interest pertains to the total amount owed at the end of the loan term, which combines both the loan amount and the interest accrued, rather than defining what the interest rate actually is.