Question

When does a bank earn interest?

A. when a consumer defaults on a loan

B. when a consumer opens a savings account

C. when a consumer makes a payment on a loan

D. when a consumer purchases an automobile with cash

Answer 1

C. when a consumer makes a payment on a loan

Step-by-step explanation:

Usually all banks lend money to their customers at a very higher rate than they pay to depositors or than they borrow it. The difference in this process is known as the margin or turn which is kept by the bank. For example, if a bank pays 1% interest on deposits, then they may charge 6% interest on loans. That is why option C is the correct answer.