For example, let's say you lend Tom and Mary $10.00 each. You know that Tom is pretty responsible and will repay you without a problem, so you charge him 5% interest. Mary, on the other hand, is irresponsible, so you charge her 20% interest.

At 5% interest, Tom pays back $10.50

At 20% interest, Mary pays back $12.00

Of course, you can't buy a house or a car for small amounts like these. Let's take a look at a real-world example.