The Calculation of Interest

Interest rates are an expression of the time value of money. The article discusses the elements involved in calculating rates in two categories of interest. The first category is interest as the return the lender requires for the use of money advanced in secured or unsecured transactions. The second is interest as a compensatory mechanism where one party has had the use and benefit of money or property belonging to the other party. Common situations there are where interest is payable under an award of damages or, more generally, under the applicable common law rules, by statute or by the rules of the court. The article then goes on to highlight various areas of the law where problems continue to arise, including moneylending contracts and payday loans, notes Islamic finance arrangements, and ends with some brief comments