What represents the financial cost of borrowing money in a bank?

The financial cost of borrowing money from a bank is best represented by the interest rate spread. This term refers to the difference between the interest rates that banks pay to their depositors and the rates they charge borrowers. Essentially, the interest rate spread is a reflection of the bank’s profit margin on loans, and it captures the cost of borrowing, which affects how much consumers will pay over time when they take out loans.

When individuals or businesses borrow money, they typically do so at a rate above the cost at which the bank funds itself (from deposits and other sources). Therefore, the interest rate spread is an essential factor in determining the actual cost of borrowing and helps indicate the risk associated with lending.

Other options like repayment rate, loan rate, and service fee do not provide a comprehensive representation of the financial cost of borrowing. The repayment rate refers to the terms or schedule under which borrowers repay their loans, while the loan rate is the specific interest rate applicable to a loan. Service fees are charges related to account maintenance or service provisions but do not encompass the core cost of borrowing.