"There are actually two economic reasons here. One is inflation," says Dr. Walden, a North Carolina Cooperative Extension economist. "If you are going to loan someone money, and they are going to pay you back in the future, to pay you back in the same amount in dollars you are actually losing money because in the interim prices have gone up. So lenders have to charge interest on one hand to account for inflation.

"Then the other factor is that if you are loaning money to someone, you are giving up the use of that money, and people would rather have money now rather than later," he adds. "So there is a time value of money aspect there. That also gets factored into the interest rate.

"So the interest rate is really the combination of these two things: inflation as well as the fact that you are giving up the use of that money," he concludes. "Looked at this way, lenders really get back the same value from the borrower when the loan is repaid as they sacrificed in making the loan."