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Old 01-17-2018, 07:52 PM
 
Location: Denver CO
19,047 posts, read 10,079,571 times
Reputation: 27863

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Quote:
Originally Posted by hitpausebutton2 View Post
Good explanation, however charging a higher interest rate on the bad credit borrower forces them to pay on the loan longer than the good borrower. Doesnt banks and loaners make you pay interest first then principle? So if a person with %10 rate, mean 90 dollars is going to the principle, vs say %30 on the bad credit, so 70 dollars is going toward the principle. They are going to pay longer and thus make "feel like it never ends". Isnt the goal is to make your money back quickly as possible and is the borrower ideal to do the same?
Golly gee, imagine that. There are consequences to having bad credit. Wow, maybe that's the reason why the people with good credit put in the effort to make that happen and keep it that way.

Otherwise, they may as well not bother to pay their bills or pay them late, so that they'd have bad credit too, and then be able to get the cheaper interest rates or at least not have any sort of benefit for keeping their bills paid in a timely manner.

Oh, right, that makes absolutely no sense whatsoever.

 
Old 01-18-2018, 03:22 AM
 
64,737 posts, read 66,226,110 times
Reputation: 43129
it is amazing how little understanding of personal finance there is out there .

for some life will always be about wanting the bar lowered rather than them elevating themselves
 
Old 01-19-2018, 05:51 PM
 
2,360 posts, read 1,031,855 times
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Quote:
Originally Posted by justsomeguy View Post
The goal is to not lose your money and to maximize your return on investment.

Let's use your example numbers. You and I each have $1,000 to invest. There are 20 people that each want to borrow $100.

10 of the people have good credit, and there is a 90% chance they will pay you back.

10 of the people have bad credit, and there is a 50% chance they will pay you back.

The interest rate is flat. Each borrower is charged 10% interest ($10).

I choose the good credit people, and you choose the bad credit people.

9/10 of the good credit people pay me back. I earned $90 in interest + $900 in principal returned = $990. I lost $10.

5/10 of the bad credit people pay you back. You earned $50 in interest + $500 in principal returned = $550. You lost $450.

Now let's say, next time you charge the bad credit borrowers a different interest rate, rather than a flat rate. You decide to charge them 80% interest.

Again, 5/10 of the bad credit people pay you back. You earned $400 in interest + $500 in principal returned = $900. You only lost $100 this time. You mitigated your losses by charging the riskier borrowers higher interest, and didn't lose as much money this time. Now you are more likely to loan money to risky borrowers, because with the higher interest rate, you have a lower chance of losing your money.

Does it make sense now?
I get it, i really do. But why pay interest first prior to principle. If the principle is paid off first, then rest is interest, then if people bail on you, least you did get your money back is what im say'in...
 
Old 01-19-2018, 06:14 PM
 
64,737 posts, read 66,226,110 times
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why ? simple math . because if someone owes you money you PAY INTEREST ON THE BALANCE . what interest would they owe you on a zero balance when it comes time to pay interest .?

if i put every penny towards principal and don't charge you the interest until the end then i will be collecting interest on a declining balance that is far less than it should be .

it is the reverse of compounding gains . where you make more on an increasing balance each year.
 
Old 01-19-2018, 06:20 PM
 
Location: Denver CO
19,047 posts, read 10,079,571 times
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Quote:
Originally Posted by hitpausebutton2 View Post
I get it, i really do. But why pay interest first prior to principle. If the principle is paid off first, then rest is interest, then if people bail on you, least you did get your money back is what im say'in...
Why would anyone lend money in the first place if all they were going to do is get back what they loaned out? They are taking a risk they'll never see that money again (all of it or at least some of it) and they are losing the use of the money that they could be spending themselves or putting into other investments where they could actually earn some profit from it.

Besides, even if you amortized it so all the interest comes due at the end, then you are essentially borrowing that money too, since you owe and it you aren't paying it, so you'd still owe it even under your convoluted reasoning.

Bottom line, no one is in business to make it easier for people with bad credit while taking all the risk and getting little to no benefit out of it. And why on earth would they??
 
Old 01-20-2018, 04:08 AM
 
64,737 posts, read 66,226,110 times
Reputation: 43129
as they say learn to raise the bridge and stop trying to lower the water .

you have to elevate yourself to what the financial world wants as far as risk vs reward . you will commit financial suicide trying to find ways to get standards lowered .

if you think poor you will be poor
 
Old 01-20-2018, 07:31 AM
 
5,607 posts, read 4,165,772 times
Reputation: 12348
Quote:
Originally Posted by hitpausebutton2 View Post
I get it, i really do. But why pay interest first prior to principle. If the principle is paid off first, then rest is interest, then if people bail on you, least you did get your money back is what im say'in...
While they’d get the initial loan amount back, they lost use of that money and any interest they could have earned by having the money invested instead of lending it.

If you think your idea is sound, then you’d be willing to lend someone money for 30 years and be satisfied at the end to receive exactly what you lent. Of course that money, due to 30 years of inflation, will be worth less than it was, but hey you’ll be happy since at least you got your money back. Right?
 
Old 01-20-2018, 10:13 AM
 
4,544 posts, read 11,555,227 times
Reputation: 3068
Quote:
Originally Posted by hitpausebutton2 View Post
So seems were all judge by a score system and the interest rate is base on that. With that being said, what is the purpose of jacking up a interest rate on somebody vs just having a flat bottom rate for everybody? Pro and con..
Should the driver who gets in two at-fault accidents per year get the same premium on their auto insurance as someone who has never had an accident?
 
Old 01-20-2018, 10:27 AM
 
4,544 posts, read 11,555,227 times
Reputation: 3068
Quote:
Originally Posted by hitpausebutton2 View Post
na just BS the way the system really is. Miss ONE PAYMENT and boom your hit automaticly with lost of say 20 points. Now you have to wait another year to get that 20 points if you dont open up or close anyhing. That is the issue. Points should rise and fall just as fast as it can, not 10 years down the road over a miss payment.

Thanks NOV3. I was just a idea and like to hear other people thoughts and reasoning, somehow it became a personal attack. The game playing is my issue, never in my life assume i have to play monopoly to please a system that is already FUBAR.
Your score could drop a lot more than 20 points for a missed payment. Question is....WHY WOULD YOU MISS A PAYMENT???
 
Old 01-20-2018, 10:39 AM
 
4,544 posts, read 11,555,227 times
Reputation: 3068
Quote:
Originally Posted by hitpausebutton2 View Post
First all, why the personal attack?

Second of all, my credit is base on history. I paid my bills, early but paid. Anything that requires me to pay interest on anything period gets paid off early as possible. So stop with the insults. IF somebody miss a payment due to a mailing issue or something beyond the control of the borrower, should not have a huge affect right off the bat. Who knows it could been the moron at the credit office putting the payments in by hand and didnt want to do their job at the end of the day. I can see a drop if you miss more then 2-3 payments on something but never been late prior and after the payment, could see a small hit. But you see my point is getting those points back that takes eff forever to get. FICO will drop you like a hot potato over a miss payment vs paying back on time after the fact. What i dont like is them basing nearly good chunk of your score is history. I would rather see a credit file with paid off items and paid/closed accounts then some 10 year history on a 300 dollar credit card. You want to see debt, and nothing else. Debt that we all should not be in, but we have to put it on a report system to please the business of it all. That debt is the problem. Its designed to give credit to those that really dont need credit. If you was paying %3 on a 4 year car note. Earlier you pay on it, less interest they are making. But you have the funds to pay it off 2 years early, so you do it. You get penalize for doing that because the bank or lender didnt make full interest off you. So now you only show 2 years of history on a close account. But according to your theory, you want to see 4 years on a open account when you had the option to close it. Change the status quo..
What we as lenders want to see is on time payments period. i.e. HISTORY. we don't care if you carry the debt or pay off the debt and neither does credit reporting. just make the damn payments on time so we don't have to chase you down for them.

you don't get penalized for paying off early, so you can scratch that one from you lame arguments.
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