The calculus of financing is not at all hard. An organization, be it a bank or another types of loan provider, has usage of funds at low priced prices. It lends those funds, and typically adds a pursuit margin.
The cost is covered by the margin of funds utilized to lend, the functional expenses of financing, together with risks connected with it. This means, net gain = Interest Revenue – Interest Expenses – Net Non-Interest costs.
It really is because straightforward as that.
Now, consider a fundamental bell bend, and you may observe how FICO ratings are likely involved in determining whom gets credit and who maybe not.