# Interest Rates ## Supply and Demand for capital Interest rates on loans, also referred to as borrow APR, are calculated to reflect supply and demand for capital in lending markets. Supply is represented by lenders supplying liquidity or capital, and demand is represented by borrowers who seek capital in exchange for depositing collateral. If there is an abundance of capital allocated to a market, more than is necessary, interest rates will be low. If however there is a shortage of capital in another market, which means strong demand with low supply, then interest will be higher. This incentivises capital to be allocated where it is most needed. Interest rates become a signal for lenders to indicate where money is most needed, and where in turn they can get the highest return on their capital. --- # Agent Instructions: Querying This Documentation If you need additional information that is not directly available in this page, you can query the documentation dynamically by asking a question. Perform an HTTP GET request on the current page URL with the `ask` query parameter: ``` GET https://docs.honey.finance/lending-protocol/interest-rates.md?ask= ``` The question should be specific, self-contained, and written in natural language. The response will contain a direct answer to the question and relevant excerpts and sources from the documentation. Use this mechanism when the answer is not explicitly present in the current page, you need clarification or additional context, or you want to retrieve related documentation sections.