Interest Expense refers to the cost incurred by a borrower for using borrowed funds. It is typically calculated as a percentage of the principal amount borrowed and is paid to lenders or creditors. This expense is recorded on a company's income statement and reduces its overall profit. Businesses often incur Interest Expense when they take out loans or issue bonds to finance operations or investments. Understanding this expense is crucial for assessing a company's financial health, as high interest costs can impact profitability and cash flow management.