Loanable Funds Market

The loanable funds market is the marketplace where there are buyers and sellers...of loans. Usually the sellers of loans, a.k.a. loanable funds, are banks, and the buyers (well, more like “renters”) are consumers like us, as well as businesses looking for a cash infusion.

In theory, the market interest rate at which money is loaned out is the equilibrium point where the supply of loanable funds and the demand of loanable funds cross. Of course, irl it’s not that simple...the Fed sets the Fed Funds rate, which affects the rate at which banks loan money, and the interest rate for each loan transaction depends on how risky the borrower is.