the young couple i met at a family ceremony were in the process of taking a home loan what struck me the most about their discussion with me was their attitude towards the bank that was lending to them they spoke with near reverence to them the loan was a wonderful act of benevolence that enabled them to achieve the dream of owning a home i pointed out to them that they were actually entering into a financial contract and they should be businesslike in their approach every financial contract has two parties with diametrically opposite needs the lender has money and the borrower needs it the lender seeks the highest rate but the borrower seeks the lowest since neither party can go by just the others word they write down the terms in a legal document and sign it however many contracts may by design favour one party over the other in a lending transaction the lenders part with the money and hope to recover it in the future they are at a higher risk compared to the borrower the lenders therefore secure their money in various ways they seek a collateral the property in case of a home loan they ensure the loan value does not exceed the value of the collateralthis is called the margin or the ltv loan to value ratio they also seek reliable information to assess the capability and willingness of the borrower to repay by verifying his or her credit score therefore my friends who are taking the loan have little reason to think that the bank is doing them a favour it makes immense business sense to the bank to lend to them and if they earn well and can repay on time the bank makes a profit out of the transaction this means as good borrowers they can choose from many lenders compare and strike a deal that favours them the most why do our friends feel obliged and warm about the loan then they do not see themselves as an attractive and competitive counterparty to the bank they know they cannot borrow this large a sum from friends or family nor can they make a bond issue to fund their loan inviting the public to view their income tax statements and decide to lend some money to them they know their need and the dependence on the bank but that should not stop them from fairly evaluating the bank the bank knows its strengths as a dominant lender and borrower in the market place those who have money make deposits and those who need money take loans the business model of the bank is to charge the lender a higher rate pay the depositor a lower rate and make a profit the bank will therefore do what it takes to maximise its profits at this point many like my friends may shift gear to see the bank as exploitative and manipulative this view of banks and businesses is as wrong