The Key Difference Between Interest Rate and Discount Rate

interest rate vs discount rate
Feature	Interest Rate	Discount Rate
Definition	The percentage charged by a lender to a borrower for the use of money.	The rate used to determine the present value of future cash flows.
Purpose	Cost of borrowing or return on savings/investment.	To calculate the current worth of future amounts.
Application	Used in loans, mortgages, savings accounts, bonds.	Used in financial valuation, capital budgeting, and investment analysis.
Role in Central Banks	Often set as policy rates influencing lending and borrowing.	Sometimes refers to the rate at which central banks lend to commercial banks.
Effect on Value	Higher interest rates increase borrowing costs.	Higher discount rates reduce the present value of future cash flows.
Perspective	Focuses on cost or gain over time.	Focuses on time value of money for valuation.