When you take a loan out from the bank, you are expected to give (well, pay) that back.
But banks put more money on top of it. It's called interest.
What exactly is interest?
Interest is what you pay for borrowing money from the banks.
In coffee shops, there will normally be a 'Tips' box/jar/thing that you can put extra bits of money if you are, say, happy with the food or service. I would think this is about the same thing as interest in banks. Yet with one difference:
IT IS NOT OPTIONAL!
You are automatically paying for borrowing money, as I have stated above, whether you like it or not.
However, you do know this in advance, as this is the mutual and legal arrangement that banks have to follow.
Interest - Good or Bad?
It is good, and the banks should carry on with it because...
it helps banks carry on giving out loans and surviving in the money market. Banks aren't MADE of money; they rely on the Goverment to help them most of the time, but that help doesn't last long, what with all the people in England in need of bank loans urgently. If someone took out a really big loan of, say, £10,000, and they didn't (or wasn't able to) pay it back, well, that's £10,000 that's gone. In this circumstance, I would think that the bank should ought to have some tips (this is what I call interest because of the example I gave above), as they have lost so much.
Banks are businesses that simply have to survive, as they not charities; they are based on the mentality of success, business, profit and gain. I don't necessarily agree with their ethis and principals but this is their way of surviving...
It is bad! because...
these people might be students, already struggling, just trying to set up a business, or buying a home, and so maybe they have student debts, that they are trying to pay off as soon as possible and that extra bit more they have to pay, let alone the rest, is making their life a hell lot harder.
Interest can cause debt. Say you are a single mother, you are trying to pay rent, and you borrow money from the bank in need of help. You successfully pay your rent, then get a letter stating that you have to pay this amount of money, on top of that is interest. You do't have the money to pay it back. Thus you are in debt with the bank.
If I had to choose between no interest and interest, I would choose no interest, as, relating to the single mother example, this meant that you would have to pay more back. This makes people depressed, because they are constantly thinking "I need to pay this back! I need to pay this back". As much interest helps banks, it can damage them greatly, if not entirely, when people don't (or can't) pay back.
At the end of the day, when you don't pay back the loan + interest, you will lose more then you gained (loss of homes, property, causes devastation and embarrassment)
Put yourself in someone-who-can't-pay-their-loans' shoes. How would you feel?