What additional money is paid to a lender for the use of their money?

The correct answer is the interest rate, which refers to the additional money paid to a lender for the use of their money. When a borrower takes out a loan, they agree to repay the principal amount borrowed along with interest. This interest compensates the lender for the risk they take by lending money and for the opportunity cost of not using that money elsewhere. It is calculated as a percentage of the principal, typically expressed on an annual basis.

Other options do not directly relate to the compensation structure involving borrowing. The principal refers to the original sum of money borrowed, fees may be additional charges incurred during the loan process but are not the primary means of compensation for lending money, and equity refers to ownership in an asset, which does not pertain directly to the borrowing relationship with lenders. Thus, the interest rate is the essential additional cost of borrowing that is calculated over the life of the loan.