Interest is just a fee. Your bank may charge you extra to compensate defaults which "destroys" part of the interest, it may charge a processing fee, a profit margin and then finally the actual interest rate the central bank sets.
Both the processing fee and profit margin circulate within the economy. They are not part of the loan, they are fees the bank is charging and using to pay its employees and shareholders who then spend that money. It is entirely possible that you are working for a bank and receiving that money as a paycheck, or your bank is purchasing services directly or indirectly from a company that you are working at.
When you think about it, central banks are not any different. They charge a fee and then send the profit to the government which then can spend it on services that eventually employ you.
You own a farm and borrow 50k from a bank that has $10k in its reserves. The loan has a duration of 10 years at 2% interest so you have to pay back 60k in total. You pay back $6k every year. The bank purchases $1k worth of food every year. The end result is that you have paid $60k to the bank and the bank has paid you $10k.
Both the processing fee and profit margin circulate within the economy. They are not part of the loan, they are fees the bank is charging and using to pay its employees and shareholders who then spend that money. It is entirely possible that you are working for a bank and receiving that money as a paycheck, or your bank is purchasing services directly or indirectly from a company that you are working at.
When you think about it, central banks are not any different. They charge a fee and then send the profit to the government which then can spend it on services that eventually employ you.
You own a farm and borrow 50k from a bank that has $10k in its reserves. The loan has a duration of 10 years at 2% interest so you have to pay back 60k in total. You pay back $6k every year. The bank purchases $1k worth of food every year. The end result is that you have paid $60k to the bank and the bank has paid you $10k.