The extra dozen chickens included in Friday's repayment is the interest on Crusoe's loan, compensating him for a loss of utility because of time preference. If Crusoe did not expect to receive interest, then the 8 dozen future eggs with which he would be repaid would rank lower on his value scale than the 8 dozen present eggs that he must relinquish. Such an interest-free loan would diminish his subjective utility, unless he also derives some psychic utility from assisting Friday (perhaps because of close friendship between the men). More commonly, of course, the term "interest" is applied to exchanges of present money for future money. The amount of interest depends on the duration of the loan. Interest rates are usually computed based on one-year loans, for which the (simple) interest rate is the difference between the future repayment amount and its price in present money (the principal), taken as a percentage of that principal. The interest rate is thus determined by the price of future money, and that price, like any other price in the free market, is determined by supply and demand and ultimately by the value scales of the market's participants.

In the following example, dollar units to be paid one year in the future are purchased using present dollars. Because of time preference, of course, the price of such a future unit is always less than $1.00; the difference is the interest on the principal. The sellers of future money are known as borrowers, while the buyers are called lenders or creditors or investors.