compound interest vs. fee

[Anarchist420]

Which do you think is a better system for loaning money (given no central bank)?

I think compound interest is but only because it would deter people from borrowing too much.

Loaning where only a fee may be charged is good for debtors, but I think it would cause more borrowing than saving.

Of course, compound interest is only a problem because of central banking. People often have no choice but to borrow due to inflation eating savings and they pay compound interest because of that. High time preference also causes people to borrow a lot of money, but the loaning of money would be reduced by 1/2 if there were a finite money supply (assuming that high time preference in society is as much as inflation).

 

[cubby1223]

the fuck?

 

[Anarchist420]

the fuck?

I'm retarded.

 

[ichy]

I'm retarded.

Yes, yes you are.

 

[Anarchist420]

comment removed

If you can't handle the heat without such comments, stay out of this kitchen.
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[gevorg]

Loaning where only a fee

You mean like Islamic banking where you cannot charge interest but can charge "extra" fees on the total loan? The end result is pretty much the same.

 

[Anarchist420]

You mean like Islamic banking where you cannot charge interest but can charge "extra" fees?

Yes.

 

[Anarchist420]

The end result is pretty much the same.

What about renting to own?

The compound interest system makes it so that you could pay millions on a thousand dollar loan if you go long enough without paying.

 

[cubby1223]

Anarchist420, did you put yourself in credit card debt and now whining like a little baby over the interest?

 

[Anarchist420]

Anarchist420, did you put yourself in credit card debt and now whining like a little baby over the interest?

Nope.

 

[gevorg]

What about renting to own?

The compound interest system makes it so that you could pay millions on a thousand dollar loan if you go long enough without paying.

Nobody is forcing you to sign up for a loan, just save up and pay in full if you think interest/fees are too much.

 

[Thump553]

I would presume as an anarchist OP is totally against any sort of lending regulation and would let the "free market" resolve the question he raises. Along the same lines government has absolutely no say in whether or not I borrow "too much" or even if I just say FU to the lender's desire that I actually pay them back.

 

[blackangst1]

I wasnt aware of the practice of lending at compound interest rates...

 

[OverVolt]

APR is compounded dumbface :awe:

http://www.investopedia.com/articles/basics/04/102904.asp#axzz2NAD1LmVv

 

[blackangst1]

APR is compounded dumbface :awe:

http://www.investopedia.com/articles/basics/04/102904.asp#axzz2NAD1LmVv

I was thinking effective yield for some reason I think I misread the OP.

 

[beachchica]

What about renting to own?

The compound interest system makes it so that you could pay millions on a thousand dollar loan if you go long enough without paying.

Millions seems like an exaggeration. Assuming you were able to pay. Why wouldn't you make your payments? And if you were unable to pay there's always the option of bankruptcy.

 

[Anarchist420]

Millions seems like an exaggeration. Assuming you were able to pay. Why wouldn't you make your payments? And if you were unable to pay there's always the option of bankruptcy.

If I bought a car for $1k on a loan with 10% compound interest then it would be over 400k if I didn't pay until I was 95.

 

[Brainonska511]

If I bought a car for $1k on a loan with 10% compound interest then it would be over 400k if I didn't pay until I was 95.

Doing some back of the envelope calculations, you're 35!? Time to leave the basement buddy.

 

[actuarial]

If I bought a car for $1k on a loan with 10% compound interest then it would be over 400k if I didn't pay until I was 95.

If you bought a car for $1K on a loan with a $7K fee for each year you don't pay it would be over $400K if you didn't pay until you were 95!

 

[OverVolt]

I was thinking effective yield for some reason I think I misread the OP.

Yea I didn't intend to be mean, just blunt.

I guess what the OP is trying to say is that exponential functions are dumb even if they are very small because as we let them run amok over time the economy becomes distorted.

 

[Born2bwire]

If I bought a car for $1k on a loan with 10% compound interest then it would be over 400k if I didn't pay until I was 95.

That's not how it works.