Bitcoin Forum

OK, so I am a newb.

Why are people willing to borrow at such high interest rates?

A friend of mine once said intelligent questions are correlated with beginning in "Why" rather than "How" or "What". I believe him by now. :)

I don't have an answer. In rare cases, people really need BTC fast, and can't wait for exchanges. But the large amount of high-yield loans probably means there's a lot of fraud going on.

I'm going to be intentionally vague here.

If you can borrow BTC at one rate and lend those same BTC at a higher rate, that's not so bad, is it?

Hmm, it's not too hard to find someone who will let you lend to them at a very, very high rate...

Of all people, you should have said what I just said in my last post ;D

I took out a loan a few months ago, at a pretty high rate (15%/month, IIRC) to purchase a new GPU. For me, I came out on top and made a couple extra BTC, compared to saving and waiting to buy. Return is proportional to risk, and lending/borrowing BTC is very risky.

loan sharks, pawn shops, title loans, credit cards, payday loans all charge high interest rates and people pay them.

what is the difference?

This exactly. Pay day loans carry insane interest rates. BTC loans have less recourse to the lender than a pay day loan.

How about ... these borrowers can't get traditional financing because they (or their ventures) are considered too high risk by the banks? Higher interest means higer risk.

Dantis caveat.

Vandroiy, mollison:

So just to spell things out, and since I am a newb: rampant fraud? All of it? Some people give you what appears like a lot of information. Like this guy: https://bitcointalk.org/index.php?topic=89122.0 . You're saying that even if he himself is not a fraud he is lending to fraudsters?

bo2573:

Payday loans are for people working paycheck to paycheck. Are you saying that a portion of the people involved in bitcoins at this point are paycheck to paycheck people?

Soros Shorts:

What are their ventures? Mining? What else?

If their return will be so high, they can't buy a mining rig using a credit card?

What you seem to fail to understand is most BTC loans are non-recourse loans. Pretty much anyone can pack up and go home, not pay a small loan and nothing will happen to them. That's why rates are higher for newer / less trusted members.

Also - lenders here don't get to see your real world credit worthiness.

OK, but my question is not on the lender side (why do they charge so much) but on the borrower side (why are they willing to pay so much). Why do people take out these loans? What are specific examples of someone needing such a loan for a legitimate reason?

I can always buy a mining rig with a credit card and not pay anything for a month until the bill arrives. Why would I look for a BTC loan?

is not the same buy a rig, that buy BTC, try to buy BTC with your credit card, is a pain on the ass and the fees are very high. + a lot of verifications need to be send to the exchage house. Both inside and outside the network bitcoin I personally use the loans to complete payments for projects, not build complete projects with it, it's never good to use others' money for personal stuff not when you dont have anything to backup that loan.

Easy - many people associated with BTC are young / students and don't have credit cards (or every dollar counts because they have low limits). Also - many countries don't have consumer lending to the level of the US/Canada and Western Europe.

Would I take a $10,000 loan at 10% per month? Most likely not, but would I take a $100 loan and pay back $110 the following month? Much more probable.

And lastly - some people want to buy something that you can only buy with BTC without having to wait to convert their fiat to BTC.

Sorry to revive a dead thread - I've been gone a few days - but since this questions was directly addressed to me...

No, I don't think people's willingness to lend or borrow is necessarily fraudulent. And you will notice that I myself have an account with vescudero (the guy you linked to).

To clarify, the hypothetical scenario I suggested earlier in this thread is that I borrow from X at a certain %, and loan out to Y and a higher %. Quick, easy profits, as long as Y doesn't run with my money. Notice that someone could do this even starting from 0 BTC. However, someone could only honestly do it, if they are able and willing to repay X even in the case that Y defaults.

However, I am not personally doing this (I have never borrowed BTC).

I think there's going to be a hell of a big lending bubble, which will pop once pirate's fund default's!

The underlying Bitcoin economy is strong enough to support such high interest rates.