What are interest costs?

Interest costs are what you pay for borrowing money, like when you ask a friend for some extra candy and promise to give them more later.

Imagine you have a piggy bank with 10 candies inside. You want to buy a bigger toy, so you borrow 5 candies from your friend. In return, you agree to give them 6 candies back next week, the original 5 plus 1 extra candy as a thank-you. That extra candy is like interest.

If you keep borrowing candies for weeks or months, the number of extra candies you have to give back might grow. This is similar to how interest costs work when you borrow money from a bank, the longer you take to pay it back, the more you end up paying in total.

Banks do this with real money. If you borrow $100 from a bank and promise to pay it back after a year, you might have to give them $105, that extra $5 is the interest cost. It’s like borrowing candies but with dollars instead!

So, interest costs are just the extra amount you pay when you borrow something and return it later.