Why is there a difference between interest charged and interest earned
The difference between interest charged and interest earned is primarily due to the roles and perspectives of the parties involved.
Interest charged refers to the interest that is imposed or charged by a lender, such as a bank or credit card company, on the borrowed money or credit. When individuals or businesses borrow money, they are required to pay interest on the loan as a fee for using the lender's funds. The interest charged by lenders is their way of earning a return on their money and compensating for the risk and opportunity cost associated with lending.
On the other hand, interest earned refers to the interest that individuals or businesses receive or earn on their savings, investments, or other financial assets. When individuals or businesses deposit funds in a savings account, purchase bonds, or invest in other financial instruments, they are entitled to receive interest payments as a reward for lending their money to others. The interest earned is a way for savers or investors to generate income or returns on their financial resources.
The difference between interest charged and interest earned is essentially the transfer of wealth from borrowers to lenders. Lenders charge interest as a cost of lending and as a means of making a profit, while borrowers pay interest as a cost of borrowing. The interest charged and interest earned exist as two sides of the same coin, reflecting the relationship between those who provide funds and those who use them.