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Hands passing money

How Do Lenders Make Money?

Banks and other lenders are in business to make money. Financial institutions pay a low interest rate on depositor accounts such as savings and money market accounts, then use that money to lend money to borrowers at a higher interest rate in the form of loans and credit cards.

It may sound like lenders are the bad guy, but they actually serve a purpose in the economy. However, because lenders have an interest in maximizing their profits, lending also comes with costs and cautions.

Lending makes the world go ‘round...

Think about your own situation: You go to the bank to get a car loan. The lender issues the loan, with some fees of course, enabling you to get your car. The car dealer now has more money to employ people and get more inventory. The employees of the dealership have income to spend and buy other goods from other businesses. Other businesses and the economies of many other families grow.

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