Should we abolish Interest?

Question

Whatever the original purpose of Interest was, all I see it doing now is corrupting the lives of people. Most people aren't in debt because they can't pay back the actual loans in full, but because this interest adds an insurmountable burden.

Now, I'm sure there is a whole justification for the system, but you can't deny that it is incredibly flawed. There are even some religions that prohibit interest, and with good reason, in my opinon.

All right, some of you have brought up the point of companies that loan wouldn't be able to generate profit.

But shouldn't it be a HUMANE thing, to just offer a loan with no strings attached? Just a good-willed intention to provide loans?

And again, clearly, something is NOT working here, when we see people unable to live their lives because of interest. At the very least, it has to be revised in someway.

Answer 1

This has been going on since bartering converted to currency. Interest rates are based on risk. You would obviously spot your best friend money based on need and time to pay it back.

Now in this case you are going to an institution that makes a living on taking on risk. Insurance companies use the same principle. There has to be a consideration and thusly an interest based on the value matrix of currency.

For example, a given amount of money can buy this now but more is needed in a future based on supply and demand, etc.

The "flaw" in interest rates is that it is under the control of the prime lending rate that is dictated by the Federal Reserve System.

Wall street index factors bounce all over as a result and affects an investors growth margins. It makes investing in a future with a rate of return a gamble on the livelihood of most businesses going public for expansion.

On the personal side, a suden rise affects: adjustable rate type loans, new business and student loans, as your "qualification" for a loan is based on income staus and the rate just lowered it down and may become a denial. You may be offered an opportunity by coming up with more cash, co-signers, etc to get a fixed rate or qualify due to this change.

Answer 2

Lending money is a business just like any other. If you can't pay the interest then do not borrow money. The whole credit system is there so you can live a fake life that you owe to someone else. It's all an illusion of well being but in reality you owe everything.

By the way, it is for credit that everything is so expensive. Since credit allow more people to buy goods the demand goes up and so the prices. If there were no credit there would be a lot less cars but it would cost about $1000.00 to buy one. Most of the third world countries don't use credit as much and that's why they are third world countries but people do not owe everything.

Answer 3

Money is a medium which allows me to buy TV's, stereos, cars and more importantly, food and a place to live. If I loan you money, then I cannot use it for those purposes.

Also because of inflation, for the same dollar, I can buy more stuff today than I will be able to a year from now. So during the loan period, my money, which I gave to you is becoming less valuable. When you pay me back a year from now, each dollar that I gave you is probably worth 95 cents -- a good deal for you but a bad one for me.

To even things out, they invented interest which is a kind of rental payment for your use of my money. This interest needs to cover the loss of value (by inflation) and a slight profit to induce me to give you the money instead of buying cars and tv's and stuff.

I agree with you that some companies charge an excessive interest rate. When credit card and other money lenders charge more than 18% then I think they're getting close to usury which should be regulated.

Answer 4

An interesting notion, no interest. Obviously banks would redesign their operations and find another (similar) way to charge money for taking loans. If they did not there would no reason to lend money, new businesses would be unable to borrow money for starting operations. Investing would make little economic sense, people would either sit on wealth or spend it immediately because there would be no incentive for savings. No new business would lead to a market dominated by few competitors who would work together to control the market, economic dominoes lead to a Third World situation. Or, better yet, total economic collapse. Fantastic idea.

My criticism is against the extent of action you speak of taking. Carefully planned regulations are instituted to control interest on loans by the Fed, and although some people sink under the burden of interest, it is a necessary evil. These regulations make the system operate, but it is still admittedly far from flawless.

Answer 5

Well, why do not we throw out capitalism. People who take on debt do so by THEIR OWN CHOOSING. Interest is compensation for loaning money. Eliminate this and there is no money available to start businesses.

Your whole premise is flawed. People make their own choices and have to live with the consequences. I am 29 and have never carried a balance on any credit card. I own everything I have. I live below my means. This is unheard of.

I watch money improvement shows and notice a pattern. Of the people who are on, they

1. Spend money on things that they do not need. This includes cable, large cars, clothes, meals out. These people confuse wants and needs.

2. They have an impulse control. They use spending to compensate for poor self image. This is no different than people who use sex, food, drugs, and the like.

PEOPLE HAVE THE CHOICE TO USE CREDIT CARDS OR NOT. I AM SICK OF WHINERS ON THIS ISSUE.

Answer 6

You need to have a basic understanding of money. Money creates money--and there is a time value of money. $100 today for example does not equal $100 in 2008. Interest is an important and necessary feature of a free market economy. Perhaps your concern is more that people may be charging an unreasonably high interest rate. That's a separate concern of the effects of corruption on society.

Answer 7

Interest was designed to give banking a profit to pay employees with and add to stock values for investors. Credit cards helped the situation get out of hand, and private lenders have to be governed by allowable state law's interest limits. Religions are considered private lenders and can set their own rules, from no interest to the max allowed by the state. But basically, bank interest rates are set just a bit above what it costs them to operate with the federal reserve

Answer 8

If you want to lessen the social effects of interest, then the government ought not restrict the rate. Once people got a taste of 75% interest for a few years, we'd all wise up and get our hou$e$ in order.

I know I've got $2,000.00 on a credit card at about 18-22% and I hate that S.O.B. and will never have another one.

Answer 9

Interest is how lending institutions make their profit. If you eliminate interest, the lenders will find some other business to go into and no loans or credit lines will be available. Of course, charging 29% interest is yet another thing...

Answer 10

Yeah, the justification is "if you don't pay me interest on the loan, someone else will."


Tell you what: ... it's a free market. You go out with your brilliant business plan to start a bank that pays no interest on deposits and charges no interest on loans. Go try to generate venture capital for this plan, and let me know how it goes.