Interest

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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.

My Opinion

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?

Comments (5)

  • Olivia-Avatar.jpg Olivia @ the BNC 07 Dec 2018

    This is an excellent post which clearly explains what interest is. I like your analogy of the tips jar. Well done for using this storytelling skill to show your understanding.

    Don't forget, people also GAIN interest from the bank, as a reward for saving their money there. For example, if you have £100 in the bank, you'll get a bit extra back in return. If we got rid of banks charging interest, would we also get rid of banks giving interest? If so, what would the consequence of this be? Who might miss out?

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  • Boutcher-logo-250x250.jpg content_lemon
    Boutcher C of E Primary School 07 Dec 2018

    Thank you for the star! Yes! I’ve tried to answer your questions...
    I think that because interest is both the bank giving (to you) and taking (from you), then if we do get rid of it, it will mean that the bank will stop taking money from you, as well as them stopping giving money. Because they are of the same thing, essentially. The consequences are that:
    • As I have mentioned in my post, it might cause a financial crisis, because the banks use the interest you give them as a sort of funding (is that the right word? I’m not sure) so that they can keep giving out loans.
    • People who keep money in their banks might not have much, and rely on that extra bit that the banks give them
    • Again, I have repeated this in my post, but, the government only help the banks a little, and yet again, that help only lasts a short time.
    I think that both people and the banks will miss out, my reasons being:
    • The banks will miss out on charging interest from people
    • And the people will miss out on getting money as interest from the banks...
    Thanks again for the star!!

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  • Olivia-Avatar.jpg Olivia @ the BNC 07 Dec 2018 in reply to content_lemon's comment

    Well done for considering these questions and developing your ideas. Good work!

    Reply to this comment
  • Boutcher-logo-250x250.jpg impartial_panda_bear
    Boutcher C of E Primary School 07 Dec 2018 in reply to content_lemon's comment

    Well done Content_lemon. I loved your post and especially agree the Government does help banks but it doesn't go very far. Well done for the star and good luck in the future!

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