4 ms·
It sounds good in theory but you're still learning. If you remove the market for 20% loans, then those people will not get finance for anything, ever. A 20% i
by brc 12y ago
It sounds good in theory but you're still learning.
If you remove the market for 20% loans, then those people will not get finance for anything, ever.
A 20% interest rate merely reflects the reality of lending to people like your younger self. They have a habit of defaulting. So to recover the money, a higher rate needs to be charged. Thus the amount of defaults can be higher and a return can still be made.
While you may think'banning' high interest rates will lead to better outcomes, it most certainly will not. See drugs, prostitution, gambling, etc. prohibition on any activity forces the activity underground, and then when you default, it's not a black mark on your credit but a black eye or worse.
What does need to happen is that credit understanding happens in school, and that every single credit product comes with a simple worksheet to clearly spell out the cost of the interest over time, and the final payback amount.
Yes, lending, even at higher rates, is a net good for society. It allows people to achieve things they currently do not have the money for. For every kid who defaults there is a family who buys a car, gets to work and builds up their credit score. A 20% rate actually says that the default rate is not too bad, overall.
- thedufer 12y ago> A 20% rate actually says that the default rate is not too bad, overall. It would for a standard loan, but auto loans are backed by the asset. At 20% it doesn't take long before interest catches up with depreciation and after that it's all profit - given the loan rates a good credit score can get you these days, ~15% above normal rates.
- brc 12y agoThe asset behind the loan has little to do with the interest rate. That is a function of default rates. There is an opportunity cost when a loan goes bad - that money is earning zero percent - as well as the cost of foreclosure (repo man and legal work) plus the recovery value of a vehicle (or property). People who have defaulted on loans generally do not return the collateral in ready-to-sell condition, and any sales must be done at wholesale level, whereas the loan is generally for an inflated retail level. The return on the performing loans has to make up for the non-performing loans and the costs of administration and recovery of bad debts. That is how a loan portfolio works. I'm not defending the shady practices of predatory lending - but the action taken really has to be on the educational side for the buyer. The rates merely reflect the market conditions at the time, and are the wrong thing to focus on. There should be entire semester of schooling dedicated to understanding credit, seeing as it is something that nearly every school leaver faces sooner or later. Money lending and overconsumption are as old as time itself - what is really needed is for people to develop the internal dialog of 'i can't afford that, forget it'
- eli_gottlieb 12y ago>If you remove the market for 20% loans, then those people will not get finance for anything, ever. Good. Aid for the poor should be aid, not debt.
- readme 12y agoWhy the hell should the poor be buying cars at 20%+ interest rates to go work at shitty jobs just to pay for the damn cars? It's a cruel joke perpetrated by profiteers. You know what there should be? More BUSES. Oh man, what an idea. Lets build more public transportation! No, that's not profitable. Never mind, lets exploit people instead, because it's good for them.