How to Define an Interest Expense

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The definition of interest expense is the amount of interest paid in total over the period of time that the money was used. Determine the interest expense on a loan with help from a certified public accountant in this free video on accounting terms.

Part of the Video Series: Business & Accounting Terms
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Video Transcript

How to define interest expense. Interest is the fee that we pay to a lender, for the use of his money, over a period of time. Let's say we borrow a hundred thousand dollars, to buy a machine, and the quoted interest rate is prime, or prime plus one. Five, six, seven percent, whatever the number might be in a given situation, and we pay that interest rate for the time that we use the money. Let us say one year, seven percent, the interest expense is seven thousand dollars, for the use of one hundred thousand dollars, for one year.


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