Why do I have to pay interest?

When an institution gives out a loan, there is a risk they will not be paid back. Because of this risk, a small percentage of the original amount is charged to the client in the form of an interest rate. Also, the institution must account for the fact that the loan represents money that cannot be used in another investment. The cost of missing this opportunity is covered in the interest. Lastly, some of the interest is used to cover administrative costs.