Gross interest rate: This is the total interest payable before any deductions such as tax and charges.

Components of Gross Interest: 

1. Net interest: Net interest is that, which is paid for the use of the services of money alone.

2. Reward for Risk: Creditor has to take the risk in lending his money. He feels skeptical about the return of money to him. 

This risk can be of two types:

• Business Risk: This risk arises because of the uncertainties of the business. When the business of the debtor is met with failure, then despite his good intentions, he is unable to repay the debt. Thus, the creditor runs a risk in giving loans. 

• Personal Risk: It refers to the economic condition, character and integrity of the debtor. When a debtor is in a position to repay his debt but he willfully refuses to do so or he becomes bankrupt, the moneylender runs a personal risk.

3. Reward for Management: Creditor has to maintain proper account books showing different transactions regarding paying of loans, receipts of interest, balance due or repayment of the principal amount, etc. He may have to engage an account clerk for this purpose. He may have to make repeated requests to the debtor for the recovery of his dues. The expenses incurred on all these items must be adequately compensated. Thus the creditor includes his reward for management of accounts in the gross interest

4. Reward for Inconvenience: Parting with money involves several inconveniences on the part of the creditor. He may not get back money when needed and he himself may have to borrow from someone else. Or he may get his money back in small installments. The reward for inconvenience thus figures in gross interest.