What term refers to the cost incurred for the use of borrowed money?

The term that refers to the cost incurred for the use of borrowed money is interest. When a borrower takes out a loan, they agree to pay back not only the original amount borrowed, known as the principal, but also an additional amount calculated as a percentage of that principal over time. This percentage is the interest rate, and the resulting cost for borrowing the money is the interest itself.

Interest is essentially the compensation that lenders receive for providing funds to borrowers, reflecting the risk and opportunity cost associated with lending. It can be calculated in various ways, including simple interest and compound interest, but fundamentally, it represents the cost of accessing borrowed capital. In contrast, principal refers to the initial amount of money that is borrowed, while fees and dividends represent different financial concepts unrelated to the specific cost of borrowing money.