What does the interest rate represent?

The interest rate represents the percentage of the amount borrowed that is added to the total amount that must be repaid. It is essentially the cost of borrowing expressed as a percentage of the principal amount, which is the original sum of money borrowed or invested. When a borrower takes out a loan, the interest rate determines how much extra they will pay back in addition to the principal, which is critical for understanding the total cost of the loan over time.

In contrast, the total amount of money borrowed refers to the principal itself, not the additional cost incurred through interest. The fee for closing a loan pertains to the transaction costs associated with finalizing the loan agreement, rather than the ongoing cost represented by the interest rate. Lastly, the interest paid only on the principal amount disregards the fact that, in most loans, interest can also be calculated on any accumulated interest or fees, which is not reflected in the simplistic view of interest applied solely to the principal. Thus, option B accurately captures the relationship between the interest rate and the overall cost of borrowing.