Make it like the new college debt rules. If you are making the minimum payment, then your total balance can’t go up. Interest can’t be higher than the minimum payment (which is also capped)
Compound interest is a ridiculous idea. When you get a loan, you should only owe a flat % on top of the loan amount. This % should be negotiated ahead of time based on the repayment schedule.
When you take a loan for {principal} over {n_periods} compounded by {frequency} at {percentage}; it turns out that there’s a mathematical formula that results in the exact cost of the loan. You can negotiate any of those parameters to achieve that flat-rate equivalent.
But watch out. Because lenders that will agree to flat-rate lending are also most likely to do so on an absolute cost-basis; meaning there is no benefit and perhaps even penalty for early payment.
Compounding isn’t all evil. Debt isn’t inherently evil, either. Like any instrument, it can be tool to improve your life and/or others’, or it can be a weapon to harm yours or others’.
I understand all of that. The way it is now, compound interest only serves to deepen the pit many people find themselves in financially. The system doesn’t work, so just because it can be beneficial to a few people sometimes doesn’t mean it’s worth keeping around.
I don’t think we can just get rid of compound interest. It’s akin to “just get rid of F=ma”.
Compound interest is an economic law of physics. In every day, in every moment, we make choices. Big or small, those choices affect the next opportunity, which affects the next, and the next after next, and so on. A series of really good choices can lead to exponential growth, and vice versa to poor choices. Compounding interest is a mathematical model to represent that. It’s literally the opportunity cost of capital.
Should be 0. If you’re late on a payment, you pay compounding interest. The idea that you can somehow charge a fee on top of that is absolutely insane.
I think it should be lower still. $5 max.
But really they need to go after interest rates. That’s where the real theft occurs.
Make it like the new college debt rules. If you are making the minimum payment, then your total balance can’t go up. Interest can’t be higher than the minimum payment (which is also capped)
Compound interest is a ridiculous idea. When you get a loan, you should only owe a flat % on top of the loan amount. This % should be negotiated ahead of time based on the repayment schedule.
When you take a loan for {principal} over {n_periods} compounded by {frequency} at {percentage}; it turns out that there’s a mathematical formula that results in the exact cost of the loan. You can negotiate any of those parameters to achieve that flat-rate equivalent.
But watch out. Because lenders that will agree to flat-rate lending are also most likely to do so on an absolute cost-basis; meaning there is no benefit and perhaps even penalty for early payment.
Compounding isn’t all evil. Debt isn’t inherently evil, either. Like any instrument, it can be tool to improve your life and/or others’, or it can be a weapon to harm yours or others’.
I understand all of that. The way it is now, compound interest only serves to deepen the pit many people find themselves in financially. The system doesn’t work, so just because it can be beneficial to a few people sometimes doesn’t mean it’s worth keeping around.
I don’t think we can just get rid of compound interest. It’s akin to “just get rid of F=ma”.
Compound interest is an economic law of physics. In every day, in every moment, we make choices. Big or small, those choices affect the next opportunity, which affects the next, and the next after next, and so on. A series of really good choices can lead to exponential growth, and vice versa to poor choices. Compounding interest is a mathematical model to represent that. It’s literally the opportunity cost of capital.
Sounds like a great low interest loan to me.
Should be 0. If you’re late on a payment, you pay compounding interest. The idea that you can somehow charge a fee on top of that is absolutely insane.