I would assume when the check or electronic transfer happens another bank account gets the money. If a car is bought, the car dealer gets the newly created money and likely deposits it in his bank. It could be the same bank as made the loan or another bank.

Then that car dealer would write checks for the cost of the car, wages of employees, etc. It would even be possible, though maybe not likely, that the person who took out the original loan might even be an employee of the car dealership. So when he made a payment on the car loan and some of the principal is paid the original money created went away from circulation at the very same bank. But it is very unlikely. More likely is that all the banks in aggregate are all initiating loans and all are having loans paid off with money that have come from other loans from other banks than their own. And at the end of the day it all nets out.

I don't claim to be an expert, and welcome anyone with better information refute my claims. This is just my understanding of the system from the reading and research I have done to try and inform myself. By understanding how the system operates, it is easier to understand how it might fail and its inherent weaknesses.

With the lack of understanding in the general public, and the built in advantages commercial banks have in their cost of goods compared to what other businesses have, I can see how any banker that does understand how it works (and I would hope they all do) would be hesitant to go out of their way to try and explain it to their customer base. It seems like it would be 1. an exercise in futility (my feelings sometimes) and 2. not particularly put their business in a good light compared to how most businesses actually have to pay for the goods they use. In the case of fractional reserve lending, the money they create as deposit money has a zero cost of goods.

As long as there is enough competition within the banking system, other forms of competition will keep the cost of banking in line for customers. As I stated earlier, banks have many other costs they have to cover and as long as there is competition for customers they will find ways of offering services for free or reduced cost in net the customer may not come out so bad. My problem is as I stated before, they fractional reserve system itself is unstable because of the boom and bust business cycle it promotes. Also in times where interest rates are artificially held low, it promotes speculation by the large too big to fail banks because their cost to speculate with other peoples money is near zero. When cost of money is near zero using it to speculate on high risk high payoff adventures appears to be too much for the big banks to ignore. If they win, the management and traders win big. If they loose in their highly speculative bets, they see to it that laws that might make them accountable have either the tax payer or the depositors pick up the tab.

Fractional reserve banking works for a long time. It works until debt loads become too high to maintain with the available money supply to pay the interest. That is what zero rate interest is doing right now. Extending the life of a system about to go parabolic. As long as the cost of money is zero, theoretically any amount of debt can be sustained. Unfortunately for us peons, we do not get to borrow at zero percent. Only the speculative banks and their speculative bets. Most of us peons have to pay anywhere from 3% all the way for some people that can't seem to manage their money to 18% and higher for credit card and other high cost debt.

Since new money is not created to pay the interest at the same time a new loan and new money is made, the interest has to come out of the pre-existing money supply. In the long end of the game it means that whoever collects interest eventually ends up with all the available money. As long as debt is in an expansion mode, new debt is created to satisfy this need to pay the interest. But there are eventual limits to the amount of debt that can be created. The peons' start asking questions when their bills have ten zero's after the one. Once the money supply growth goes parabolic to supply the money to cover the interest, it is close to game over and a reset of the system. We would likely already be there if the overnight rate was 5% instead of 0%.

Just my peon understanding of how the banking and monetary system based on debt works. I could be wrong.

John