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Author Topic: Why do people charge Interest for loans?  (Read 1033 times)
jdany
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August 17, 2013, 02:25:40 PM
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Bitcoins sitting in a wallet make no interest.
Lending to others allows you to earn interest on your coins.

Lenders figure out what works for them so that their balance goes up as they let other people use their coins.
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Kluge
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August 17, 2013, 02:28:07 PM
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People charge interest to earn interest. Got it. Thanks for the new thread to share your epiphany.

Don't mix your coins someone said isn't legal
jdany
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August 17, 2013, 02:36:26 PM
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People charge interest to earn interest. Got it. Thanks for the new thread to share your epiphany.

Black holes are created because opposite threads don't get created.

You're welcome.  x 2
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August 17, 2013, 02:48:24 PM
 #4

Why did I capitalize the I in Interest?

Is it proper?
01BTC10
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August 17, 2013, 02:50:57 PM
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Lending is risky business. Got burned for a total of 5 figures IRL. Never again.
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August 17, 2013, 02:56:54 PM
 #6

When you lend money, the interest you charge covers the "cost of doing business." (
Which includes the probability those that you lend to will default.

Let's just say that 9 out 10 loans from those who have under 30 posts default.
If you loan 0.01 BTC to those 10 people, you would have to loaned 0.1 BTC.
You theorize you will lose .09 BTC when you loan to this group.
100% Interest = .02 (.08 loss)
500% Interest = .05 (.05 loss)
1000% Interest = .10 (break even)

You would have to >1000% for this group to be profitable
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August 17, 2013, 03:00:29 PM
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When you lend money, the interest you charge covers the "cost of doing business." (
Which includes the probability those that you lend to will default.

Let's just say that 9 out 10 loans from those who have under 30 posts default.
If you loan 0.01 BTC to those 10 people, you would have to loaned 0.1 BTC.
You theorize you will lose .09 BTC when you loan to this group.
100% Interest = .02 (.08 loss)
500% Interest = .05 (.05 loss)
1000% Interest = .10 (break even)

You would have to >1000% for this group to be profitable
If someone is willing to pay 1000% interest they have a practical 0% chance of repaying.
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August 17, 2013, 03:03:54 PM
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When you lend money, the interest you charge covers the "cost of doing business." (
Which includes the probability those that you lend to will default.

Let's just say that 9 out 10 loans from those who have under 30 posts default.
If you loan 0.01 BTC to those 10 people, you would have to loaned 0.1 BTC.
You theorize you will lose .09 BTC when you loan to this group.
100% Interest = .02 (.08 loss)
500% Interest = .05 (.05 loss)
1000% Interest = .10 (break even)

You would have to >1000% for this group to be profitable
If someone is willing to pay 1000% interest they have a practical 0% chance of repaying.
That may explain why practically 0% of those loan requests are fulfilled anymore.

Shit, guys, this is really turning into a productive brainstorming session! Okay, so now we know why people charge interest for loans, and why ultra-high-risk loan requests are turned down. Maybe next, we can figure out why people eat. To poop? Huh

Don't mix your coins someone said isn't legal
jdany
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August 17, 2013, 03:16:55 PM
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When you lend money, the interest you charge covers the "cost of doing business." (
Which includes the probability those that you lend to will default.

Let's just say that 9 out 10 loans from those who have under 30 posts default.
If you loan 0.01 BTC to those 10 people, you would have to loaned 0.1 BTC.
You theorize you will lose .09 BTC when you loan to this group.
100% Interest = .02 (.08 loss)
500% Interest = .05 (.05 loss)
1000% Interest = .10 (break even)

You would have to >1000% for this group to be profitable
If someone is willing to pay 1000% interest they have a practical 0% chance of repaying.
That may explain why practically 0% of those loan requests are fulfilled anymore.

Shit, guys, this is really turning into a productive brainstorming session! Okay, so now we know why people charge interest for loans, and why ultra-high-risk loan requests are turned down. Maybe next, we can figure out why people eat. To poop? Huh

I can take this one.  Shall I create a new topic?  Or, is pooping and loans similar enough?
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Okey Dokey Lokey


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August 17, 2013, 03:18:02 PM
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http://bitcoin-otc.com/viewratingdetail.php?nick=DingoRabiit&sign=ANY&type=RECV <-My Ratings
https://bitcointalk.org/index.php?topic=857670.0 GAWminers and associated things are not to be trusted, Especially the "mineral" exchange
BTC_Bear
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August 18, 2013, 01:23:37 AM
 #11

Bitcoins sitting in a wallet make no interest.
Lending to others allows you to earn interest on your coins.

Lenders figure out what works for them so that their balance goes up as they let other people use their coins.



NOT TRUE.


  In fact, 100 bitcoins of holdings from 'the beginning', has earn you one heck of an interest rate. Saving coins seems to be better than lending coins without the added risks. (Might not always be true though). Satoshi could sign the int and end it all. Smiley

Corporations have been enthroned, An era of corruption in high places will follow and the money power will endeavor to prolong its reign by working on the prejudices of the people until wealth is aggregated in a few hands and the Republic is destroyed. ~Abe Lincoln 1ApJdWUdSWYw8n8HEATYhHXA9EYoRTy7c4
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August 18, 2013, 01:57:01 AM
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Is it legit to charge interest in bitcoin? Doesn't it lead to fractional reserve banking?
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August 18, 2013, 02:11:46 AM
 #13

Is it legit to charge interest in bitcoin? Doesn't it lead to fractional reserve banking?

Interest is another way of saying Entropy.

Fractional Reserve banking in of itself is not bad. People running it, might make it seem bad. Without FR banking, banks would have to charge you to hold your money, they wouldn't pay you interest. (lol, not like they really pay you interest anyways).
Plus they got a little out of hand with their leverage amounts for FR Banking.

Corporations have been enthroned, An era of corruption in high places will follow and the money power will endeavor to prolong its reign by working on the prejudices of the people until wealth is aggregated in a few hands and the Republic is destroyed. ~Abe Lincoln 1ApJdWUdSWYw8n8HEATYhHXA9EYoRTy7c4
jdany
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August 18, 2013, 02:13:05 AM
 #14

Bitcoins sitting in a wallet make no interest.
Lending to others allows you to earn interest on your coins.

Lenders figure out what works for them so that their balance goes up as they let other people use their coins.



NOT TRUE.


  In fact, 100 bitcoins of holdings from 'the beginning', has earn you one heck of an interest rate. Saving coins seems to be better than lending coins without the added risks. (Might not always be true though). Satoshi could sign the int and end it all. Smiley

Great point. 
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August 24, 2013, 01:43:44 AM
 #15

http://en.wikipedia.org/wiki/Time_value_of_money

Only when the tide goes out do you discover who's been swimming naked. -Warren Buffett
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