Why do people charge Interest for loans?

[jdany]

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.

[1713548656]

1713548656

[1713548656]

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[Kluge]

People charge interest to earn interest. Got it. Thanks for the new thread to share your epiphany.

[jdany]

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

[jdany]

Why did I capitalize the I in Interest?

Is it proper?

[01BTC10]

Lending is risky business. Got burned for a total of 5 figures IRL. Never again.

[jdany]

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

[🏰 TradeFortress 🏰]

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.

[Kluge]

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?

[jdany]

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?

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

[Fiyasko]

[JusticeForYou]

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.

[Machinery]

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

[JusticeForYou]

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.

[jdany]

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.

Great point. 

[C10H15N]

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