This is not an issue in real economy.
First of all you are mischaracterizing the problem. When someone charges 5% interest that is not 5% more than total amount of money that exists. That is 5% of money that already exists.
- Money has a velocity. 1 US dollar or 1 euro can be use more than just single time.
Every time you pay an interest on long term loan, bank will not just keep that money as an art installation. They will spend it either to pay for costs of their operation or use it to pay profits. In turn bank employees, suppliers or shareholders will not keep the money as an art installation either. They will spend it for goods and services they desire.
Interest rates are not random numbers they are determined by money demand and money supply. Assuming we’ll functioning market interest rates are always set in a way to equilibrate quantity of money supplied to quantity of money demanded (see Mankiws Macroeconomic).
Prices in the economy are not random. Prices that people can charge for their goods and services etc depend on what is the quantity of money in the economy. Now In a simplistic way this relationship can be described by the equation of exchange (see Mankiw Macroeconomics pp82). The equation of the exchange is given by:
Where $M$ is total money supply, $V$ velocity of money (how often one bill is used in the economy), $P$ are aggregate prices and $Y$ real output. Hence, price level and velocity of money have to adjust to make it possible to purchase all goods and services in the economy otherwise the economy is not in an equilibrium.
- Also, the extra money cannot come from other countries since only US is allowed to create US dollars. It’s not like Brazil can (legally) issue dollars
Consequently, suppose you take out 2y 100 loan with 10% simple interest. Also, not all money is created by banking sector, with a reserve requirement of 10% for 100 dollars of lending there has to be somewhere in the economy at least 10 dollars (or more) worth of high powered money (now reserve requirements has recently been abolished and replaced with capital requirements - see Fed explainer here, these are more complex than reserve requirements but in the end they still constrain banking lending in conceptually similar way so I will continue using reserve requirements for simplicity sake$. You will spend 100 dollars to produce 11 donuts each year that you sell for 10 dollars each.
Well the same 100 dollars that you spend on production (by paying suppliers, workers etc) won’t disappear from the economy. Those workers need to eat so they will purchase your donuts from their wages so you again have 100 dollars. Also with 100 dollars there had to be at least 10 dollars of high powered money so at the minimum so there is enough money to buy your 11 doughnuts for 10 dollars each, the holder of the 10 dollar high powered money will purchase it.
Now it is end of the year so you pay 10 dollars interest to the bank. Next you also work to be able to buy goods and services so you spend the 100 dollars on stuff you like and now the money is back in the economy. The interest of 10 dollars will also be back in the economy because bank will not keep that money as art installation but to pay for its costs or to pay dividends to the owners of the bank. In turns these people will spend their paychecks or dividends on goods and services.
Next year you produce again 11 donuts and the same thing will happen. People will purchase 10 donuts with 100 they have, bank owners (assuming original interest rate way all used for dividends) will now buy the last donut and you will get 110 dollars, exactly as much as you need to pay for interest and principal.
Sure the example above is extremely simplistic and cheesy but it just goes to show that even with interest there is no need for extra money.