Imagine you borrow $100 from a bank, and they charge you $120 to pay it back later. That extra $20 is how the bank makes money! When people take out loans, banks get more money than they give out, that’s how they become rich.
Examples
- A child borrows $10 from a piggy bank and pays back $12 later.
- You take out a loan to buy a toy, but you end up paying more than the toy costs.
- A bank gives you money for your birthday party, and you return it with some extra candies.
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See also
- How Do Banks Decide to Lend Money?
- How Governments Pay for Their Debts by Printing Money
- How Do Banks Make Money from Interest Rates?
- How Do ‘Currencies’ Get Their Value and What Determines It?
- How Do ‘Coins’ Stay in Circulation and What Happens to Old Ones?
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