Why bank need cheap loan as low as 0% to make profit??

[Broly46]

Please explain in laymen term

Bank hand out the loan at 6-10% interest rate to Small Medium business
Central bank provide low rate (0%) loan to small bank to MAKE profit

The bank can’t survive with 0% interest rate?
How can small business survive with 6-10% interest rate?
How can people survive with 6-10% personal loan interest rate?
Why bank is above small business and human on interested rate privilege?
This is a major scam!

[ranochigo]

Contrary to popular belief, central banks of the country are not a private institution and are directly regulated by the government. In times of recession or similar crisis, the government will lower the interest rate so as to encourage borrowings from the consumers and firms, which will in turn result in an increase in consumer's expenditure and investment expenditure by firms. This results in an increase in the GDP as both are components of it.

The commercial banks should have a lower than usual interest rates when the central bank sets the interest rates lower. There's a difference between what a central bank and a commercial bank.

Tl;dr: Central Banks do not have to necessarily make a profit. They have to sometimes align with the policies enacted by the government as a stopgap to further deterioration of the economy.

[avikz]

The bank can’t survive with 0% interest rate?
How can small business survive with 6-10% interest rate?
How can people survive with 6-10% personal loan interest rate?
Why bank is above small business and human on interested rate privilege?
This is a major scam!

Can you please tell me where you have seen this happening?

Because in a country if the Cebtral Bank is providing loans to banks at zero interest rate, there is no way the Bank will charge 6% - 10% interest rate from individuals or businesses. It has to be around 2% - 3% annually! So please let me know where you have seen such disparity?

Secondly, banks decide their interest rate in 2 main ways! One is MCLR and the other one is Repo Rate bases. The MCLR is decided the banks based on their cost of acquiring the capital money they are lending outside. This is usually 2% - 3% higher than the Repo rate. On the other hand, the Repo rate based loans are cheaper as they are linked to the Central bank decided rate.

Usually Repo Rate based loans are offered to the customers with good credit rating and previous loan repayment history. But yes, there's no hard an fast rules about it and it's on the bank to decide!

[Broly46]

Contrary to popular belief, central banks of the country are not a private institution and are directly regulated by the government. In times of recession or similar crisis, the government will lower the interest rate so as to encourage borrowings from the consumers and firms, which will in turn result in an increase in consumer's expenditure and investment expenditure by firms. This results in an increase in the GDP as both are components of it.

The commercial banks should have a lower than usual interest rates when the central bank sets the interest rates lower. There's a difference between what a central bank and a commercial bank.

Tl;dr: Central Banks do not have to necessarily make a profit. They have to sometimes align with the policies enacted by the government as a stopgap to further deterioration of the economy.

===
Yup, central bank do not make profit, they provide cheap loan to smaller banks, and the smaller banks further provide loan at higher rate to end users, the point is lower interest rate is not passed down to end user during pandemics where small bank have the privilege of even lower rate but small business are often get stuck with the same rate, the rational being to help smaller bank make profit during pandemic yet killing all other small businesses, that’s some retard decision bank has made.

===

The bank can’t survive with 0% interest rate?
How can small business survive with 6-10% interest rate?
How can people survive with 6-10% personal loan interest rate?
Why bank is above small business and human on interested rate privilege?
This is a major scam!

Can you please tell me where you have seen this happening?

Because in a country if the Cebtral Bank is providing loans to banks at zero interest rate, there is no way the Bank will charge 6% - 10% interest rate from individuals or businesses. It has to be around 2% - 3% annually! So please let me know where you have seen such disparity?

Secondly, banks decide their interest rate in 2 main ways! One is MCLR and the other one is Repo Rate bases. The MCLR is decided the banks based on their cost of acquiring the capital money they are lending outside. This is usually 2% - 3% higher than the Repo rate. On the other hand, the Repo rate based loans are cheaper as they are linked to the Central bank decided rate.

Usually Repo Rate based loans are offered to the customers with good credit rating and previous loan repayment history. But yes, there's no hard an fast rules about it and it's on the bank to decide!

===

Just give a call to locate nearest bank and they will quote you the rate near instantly, you don’t need to get out of the basement and get to know the rate, on real time,

6-10% is very conservative estimate, and most banks are reluctance to provide loan at even lower rate than advertised, they always have myriad of reasons to not provide their loan to risky business such as small business.

===

[jackg]

Because in a country if the Cebtral Bank is providing loans to banks at zero interest rate, there is no way the Bank will charge 6% - 10% interest rate from individuals or businesses. It has to be around 2% - 3% annually! So please let me know where you have seen such disparity?

I think 4% is the reasonable cost to add tbh.

Banks still have previous bonds/creditors they have to pay off also.

BUT! What you're probably quoting is an advertised rate, I've seen banks advertise 6-12% (risk dependent) but I think you should be able to negotiate it down to 4-5% above the base rate pretty easily.

Banks also REALLY want to give mortgages and collaterally backed loans because they're easier for them to manage (and less regulated).

Local banks/building societies might give better advertised rates also if you don't want to negotiate.

[nemey]

I think it's very likely that a small business will be able to pay off a bank loan at 6-10% interest. It depends on how the small business tries to run well and grow rapidly. That is why someone still needs additional income apart from his main business, in order to get a reserve fund and maybe be able to help ease the debt to the bank.

[Mauser]

Please explain in laymen term

Bank hand out the loan at 6-10% interest rate to Small Medium business
Central bank provide low rate (0%) loan to small bank to MAKE profit

The bank can’t survive with 0% interest rate?
How can small business survive with 6-10% interest rate?
How can people survive with 6-10% personal loan interest rate?
Why bank is above small business and human on interested rate privilege?
This is a major scam!

What I noticed in my country is that banks don't pay interest anymore on deposit, on top of that they increased banking fees by 100 % on top over the last 12 months and still they need to charge such high interest rates on loans. For me as an saver that means the bank is not really interested in my deposit anymore. It would be actually cheaper for me to withdraw and keep the money at home. But no one is going to do that, that is why banks can charge those fees.

[avikz]

Contrary to popular belief, central banks of the country are not a private institution and are directly regulated by the government. In times of recession or similar crisis, the government will lower the interest rate so as to encourage borrowings from the consumers and firms, which will in turn result in an increase in consumer's expenditure and investment expenditure by firms. This results in an increase in the GDP as both are components of it.

The commercial banks should have a lower than usual interest rates when the central bank sets the interest rates lower. There's a difference between what a central bank and a commercial bank.

Tl;dr: Central Banks do not have to necessarily make a profit. They have to sometimes align with the policies enacted by the government as a stopgap to further deterioration of the economy.

===
Yup, central bank do not make profit, they provide cheap loan to smaller banks, and the smaller banks further provide loan at higher rate to end users, the point is lower interest rate is not passed down to end user during pandemics where small bank have the privilege of even lower rate but small business are often get stuck with the same rate, the rational being to help smaller bank make profit during pandemic yet killing all other small businesses, that’s some retard decision bank has made.

===

The bank can’t survive with 0% interest rate?
How can small business survive with 6-10% interest rate?
How can people survive with 6-10% personal loan interest rate?
Why bank is above small business and human on interested rate privilege?
This is a major scam!

Can you please tell me where you have seen this happening?

Because in a country if the Cebtral Bank is providing loans to banks at zero interest rate, there is no way the Bank will charge 6% - 10% interest rate from individuals or businesses. It has to be around 2% - 3% annually! So please let me know where you have seen such disparity?

Secondly, banks decide their interest rate in 2 main ways! One is MCLR and the other one is Repo Rate bases. The MCLR is decided the banks based on their cost of acquiring the capital money they are lending outside. This is usually 2% - 3% higher than the Repo rate. On the other hand, the Repo rate based loans are cheaper as they are linked to the Central bank decided rate.

Usually Repo Rate based loans are offered to the customers with good credit rating and previous loan repayment history. But yes, there's no hard an fast rules about it and it's on the bank to decide!

===

Just give a call to locate nearest bank and they will quote you the rate near instantly, you don’t need to get out of the basement and get to know the rate, on real time,

6-10% is very conservative estimate, and most banks are reluctance to provide loan at even lower rate than advertised, they always have myriad of reasons to not provide their loan to risky business such as small business.

===

I am sure you didn't understand my question so let me reiterate it again!

I am trying to understand in which country the Central Bank provides loan to Banks in zero interest rate while the Banks are lending that money at 6% - 10% interest rate??

I didn't want to know the interest rate that banks in my country are offering! My concern here is only about the difference here! That is not possible! The Repo rate of my country is close to 4% while my home loan interest is at 7.45% as it is linked to MCLR. This is a justified difference that banks earn usually.

Hope you got my point now!

[fiulpro]

Well according to the government, they are doing this to :
" Actually help the people, the people can take loans during this pandemic then help their families and stuff "

Actually, it's the government who is controlling the banks , most of them and most of the other private banks are interrelated with the governmental banks. You should understand that this would make the money flow in the society. People are being given many aids by the government but sometimes it's not just enough. It's like people have this other option.

Now if there is a small business which is looking for a loan and they will be able to get their business started even during the pandemic when the situation is very bad so this way the whole country will be benefited and this would inturn help the GDP to grow and help the government too. The government and the country is nothing without the business and other firms achieving a stable space.

This is really really helpful for the people. This is something they are doing for them.

[Ucy]

Is interest rate to small banks really that low? I guess the Central Bank does that so that small banks will charge low interest rate to small businesses with long-term repayment?

[sunsilk]

The bank can’t survive with 0% interest rate?

There's a crisis and that's why they have to let the money flow with lower interest rates. I don't think that it's even 0% rates, do you have some source to back it up?

How can small business survive with 6-10% interest rate?

You still don't know how small businesses works. If the capital comes from loan, the profit that they generate will usually pay off the debt before getting themselves the profit. It's the cycle in the business sector. Maybe out of 100% profit or revenue, they'll only get 5-10% of profit then the rest will go through expenses and payment to debts.

How can people survive with 6-10% personal loan interest rate?

I've known people that were even able to survive with 20% interest rates. If there's a will, there's a way. You get that debt and you need to be responsible paying that. But with the financial and health crisis that's happening today, there are thresholds or extensions when the loaner shall pay. And as sign of recovering together, they'll also consider lowering the rates.

[Om.monata]

As far as I know small businesses are limited by the number of small loans to be able to maintain their payments at 6-10% interest and match their turnover. so I think there is already a real calculation between the business and existing bank loans so that the bank and the borrower can understand each other

[Broly46]

The bank can’t survive with 0% interest rate?

There's a crisis and that's why they have to let the money flow with lower interest rates. I don't think that it's even 0% rates, do you have some source to back it up?

===
Central bank are giving out loan at zero interest rate at zero percent to who? To bank or to you? By my logic you won’t be entitle that benefit no matter you can argue to death, to the bank? Yeah possible, to the big banker like Jamie Dimon? Yes Jamie Dimon basically receive free money from central bank for doing absolutely nothing, he is loving it, why can’t he?😂 you want prove, We are not settling this in the court room, we don’t need any prove to form any verdict, yes there is a lot of prove but I’m 100% sure none of this “prove” will convince you and you will still ask for more prove because prove is as dubious as calling election fraud and we have a prove.
===

How can small business survive with 6-10% interest rate?

You still don't know how small businesses works. If the capital comes from loan, the profit that they generate will usually pay off the debt before getting themselves the profit. It's the cycle in the business sector. Maybe out of 100% profit or revenue, they'll only get 5-10% of profit then the rest will go through expenses and payment to debts.

====
With zero interest rate, and money given to them for free from the central bank, what sort of debt they’re paying? I think they’re paying for their luxury cars fast women fast house.😅

===

How can people survive with 6-10% personal loan interest rate?

I've known people that were even able to survive with 20% interest rates. If there's a will, there's a way. You get that debt and you need to be responsible paying that. But with the financial and health crisis that's happening today, there are thresholds or extensions when the loaner shall pay. And as sign of recovering together, they'll also consider lowering the rates.

[/quote]

===
I’d like to observe how bank gonna survive with 20% interest rate, since there is a will there is a way, this disgusting bank has to be the role model of making 20% in this market conditions, and they’re resorting to 0%, that’s major scam!😂
===

[Hydrogen]

The bank can’t survive with 0% interest rate?

Growing wealth and wage inequality raises the default rate of loans. Rising student and home loan defaults diminish profitability. Many banks adopt high risk coupled with high reward (or high failure) business models. Greater risk is correlated with greater failure as illustrate by the 2008 economic crisis where high risk subprime mortgage derivatives became world famous.

Derivatives exposure for banks has been discussed ad infinitum for many years. Losses in derivatives / investment markets, another area where banks sometimes have trouble.



On the topic of central banks, many are privately owned and produce profits.

The financial crisis as moneymaker

Aug. 31, 2009

Dan Gross pointed it out Friday, and the NYT joins in today: The government’s Troubled Asset Relief Program is starting to look like a moneymaker—or at least no longer like a giant hole into which money is poured. Meanwhile, the FT reports that the Federal Reserve has made a $14 billion profit on its various crisis-fighting loan programs. This is great! Let’s a have a financial crisis every year!

https://business.time.com/2009/08/31/the-financial-crisis-as-moneymaker/

[Fortify]

You can find rates lower than 6%. If you have solid credit or a good business reputation it is more likely you are able to get a 2-3% rate on a loan. Personal loan rates are also a bit higher than they were at the start of the year because we are technically in a recession caused by Covid and it makes absolute sense for a bank to restrict credit when people are losing their jobs - a likely trigger causing them to stop repaying loans. I don't know why you think banks are a scam (it sounds rather silly to make such a claim), people aren't obligated to lend out money and this is the most basic financial concept around.

[ReiMomo]

As I understand and if I am not mistaken OP's concern is that the private banks can get a loan from the central bank at a 0% interest rate while these banks would give 6-10% interest rate to their borrowers which refer to the small to medium enterprises, which in a glance could be really considered as a stratagem.

However private banks are business too that aside from the taxes they are paying to the government there are other expenses that they need to compensate for to keep their business running. Though 6-10% is quite high I am pretty sure that they are only meeting the government requirements I guess.

[palle11]

Banks are set up to make profit. It is even because it of government regulation that the rates of interest of bank loan is within what we are talking about. Banks are owned and operated by individuals especially in commercial banks so expect that profit should be made.

[Broly46]

The bank can’t survive with 0% interest rate?

Growing wealth and wage inequality raises the default rate of loans. Rising student and home loan defaults diminish profitability. Many banks adopt high risk coupled with high reward (or high failure) business models. Greater risk is correlated with greater failure as illustrate by the 2008 economic crisis where high risk subprime mortgage derivatives became world famous.

Derivatives exposure for banks has been discussed ad infinitum for many years. Losses in derivatives / investment markets, another area where banks sometimes have trouble.



On the topic of central banks, many are privately owned and produce profits.

The financial crisis as moneymaker

Aug. 31, 2009

Dan Gross pointed it out Friday, and the NYT joins in today: The government’s Troubled Asset Relief Program is starting to look like a moneymaker—or at least no longer like a giant hole into which money is poured. Meanwhile, the FT reports that the Federal Reserve has made a $14 billion profit on its various crisis-fighting loan programs. This is great! Let’s a have a financial crisis every year!

https://business.time.com/2009/08/31/the-financial-crisis-as-moneymaker/

Let’s me get this straight

The mega rich know:
“The best way to rob the bank is to own the bank”

The mega rich elite also know:
 “GIVE me control of a nation's money supply, and I care not who makes its laws.”

The mega rich definitely know how to make profit by manipulate the bank and interests rate.

My assumption
“The best way to rob the small medium business, the people and every other peasants(include your kids, your grand kids, grand grand kids...), is to own the interest rate privilege”

This make a lot of sense, the mega rich can rob everybody easily by manipulating the interest rate at their will, they care no who take the loan, all of them has to die by pillage of debt.

How do they make it work? Interest rate is some sort of “silent tax”, the govt definitely love to tax everybody to death, “nobody can escape tax and death”, is it possible to increase these “silent tax” through manipulating interests rate? Yes it is quite possible, since they have the control of the money and the interest rate, why can’t they make it work? They just need to make everybody else pay this “silent tax” while they themselves pay absolutely 0% of this “silent tax”, yup it’s a major scam, a scam to rip off the 99% while enrich the 1%.

[Broly46]

As I understand and if I am not mistaken OP's concern is that the private banks can get a loan from the central bank at a 0% interest rate while these banks would give 6-10% interest rate to their borrowers which refer to the small to medium enterprises, which in a glance could be really considered as a stratagem.

However private banks are business too that aside from the taxes they are paying to the government there are other expenses that they need to compensate for to keep their business running. Though 6-10% is quite high I am pretty sure that they are only meeting the government requirements I guess.

===

Do you wonder why more and more private small shadow banks are thriving like mushrooms around you? I think they must have having a good time on profiting during the pandemic, something is quite wrong here but it’s too very complicate to explain, that might be why they keep lowering the rate to make even more money but not increase the rate.

===

Banks are set up to make profit. It is even because it of government regulation that the rates of interest of bank loan is within what we are talking about. Banks are owned and operated by individuals especially in commercial banks so expect that profit should be made.

===

Zero percent Interest rate is definitely not something you would consider “normal”, you’re looking at historical moment because interest rate had been keeping above zero percent for over a hundred years, not something you did want to ignore and move on.

===

Well according to the government, they are doing this to :
" Actually help the people, the people can take loans during this pandemic then help their families and stuff "

Actually, it's the government who is controlling the banks , most of them and most of the other private banks are interrelated with the governmental banks. You should understand that this would make the money flow in the society. People are being given many aids by the government but sometimes it's not just enough. It's like people have this other option.

Now if there is a small business which is looking for a loan and they will be able to get their business started even during the pandemic when the situation is very bad so this way the whole country will be benefited and this would inturn help the GDP to grow and help the government too. The government and the country is nothing without the business and other firms achieving a stable space.

This is really really helpful for the people. This is something they are doing for them.

===

“it's the government who is controlling the banks”, now everything seem clear since every bank are under control by government to rip off everybody else except the government, it’s perfect fine to equal bank = government at this rate, every government will do is collect tax and make your life a living hell, now that’s what bank have been doing for quite sometime, that also make sense why they need to lower the rate for themselves(the government) while maintaining the rest of the people, since it’s quite easy to assume everybody are having debt at some point, it’s easy for them to just collect tax on top of their debt by manipulating the interest rate. That’s right, pay tax on debt which sound very stupid but it’s not something new, people have been paying tax on top of their loss for quite sometime, paying tax on debt just take it to a whole new level of new low.

===

[bits4books]

Exactly. The Bank cannot survive with such rates because the Bank's money is divided, in fact, into two parts.
"Credit" - those that the Bank takes for storage from people as a Deposit and charges any % on these deposits so that it is profitable for people to carry money to banks.
"Loan" - those that the Bank just gives out as a loan to people who pay the Bank % for using this money.
The Central Bank can issue loans at 0% because this is in fact a repayable debt, not a loan, and the profit will be as taxes received by the state.
Banks can't afford this luxury - at whose expense do they have to pay salaries, rent, operating expenses, etc., etc.? Just go to the Wikipedia article about banks and understand why this is happening, but of course it is much better to ask on the crypto forum how banks work.