Why do we have to pay interest on a loan?

We pay interest on a loan as a cost for borrowing money, compensating the lender for the risk of lending and the opportunity cost of not using that money elsewhere. Interest also reflects the time value of money, where a dollar today is worth more than a dollar in the future. Additionally, it helps cover administrative costs and potential losses from defaults. Overall, interest serves as an incentive for lenders to provide funds to borrowers.