Why do banks charge borrowers a high rate of interest?

Banks charge borrowers a high rate of interest to compensate for the risk of default, as not all borrowers will repay their loans. Additionally, higher interest rates help banks cover operational costs and provide a profit margin. Economic factors such as inflation and market competition also influence interest rates, allowing banks to adjust rates based on prevailing conditions. Ultimately, the interest charged reflects the risk-return trade-off inherent in lending.