🤌What is Interest Rate?

Rate of Interest or Interest Rate is one major consideration while taking a loan. However, this MUST NOT be the only consideration, as explained in this section.

Interest rate is defined as the yearly rate of interest payable when a loan is taken from a particular lender.

If the interest rate is mentioned as 5%, it means, for every 100 USD borrowed, the borrower needs to pay 5 USD as interest per year.

Decentra Credit use Simple Interest

In real world, and in many crypto dapps, interest is calculated using Compound Interest method. This means, what we see (as Rate of Interest) is NOT what we actually pay.

In simple terms, in compound interest method, users ends up paying much higher than the perceived value. For a detailed discussion on both these calculation methods, read here.

At Decentra, we made life simple for everybody by utilising simple interest method. If the interest rate is mentioned as 5%, a borrower pays exactly 5% and not one penny more.