Financing cost

Written by Evispot. Posted in f, Glossary.

Financing cost or the cost of funds is a reference to the interest rate paid by financial institutions for the funds that they use in their business. The cost of funds is one of the most important input costs for a financial institution since a lower cost will end up generating better returns when the funds are used for short-term and long-term loans to borrowers.

The spread between the cost of funds and the interest rate charged to borrowers represents one of the main sources of profit for many financial institutions.

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