When you take a loan for {principal} over {n_periods} compounded by {frequency} at {percentage}; it turns out that there’s a mathematical formula that results in the exact cost of the loan. You can negotiate any of those parameters to achieve that flat-rate equivalent.
But watch out. Because lenders that will agree to flat-rate lending are also most likely to do so on an absolute cost-basis; meaning there is no benefit and perhaps even penalty for early payment.
Compounding isn’t all evil. Debt isn’t inherently evil, either. Like any instrument, it can be tool to improve your life and/or others’, or it can be a weapon to harm yours or others’.
I understand all of that. The way it is now, compound interest only serves to deepen the pit many people find themselves in financially. The system doesn’t work, so just because it can be beneficial to a few people sometimes doesn’t mean it’s worth keeping around.
I don’t think we can just get rid of compound interest. It’s akin to “just get rid of F=ma”.
Compound interest is an economic law of physics. In every day, in every moment, we make choices. Big or small, those choices affect the next opportunity, which affects the next, and the next after next, and so on. A series of really good choices can lead to exponential growth, and vice versa to poor choices. Compounding interest is a mathematical model to represent that. It’s literally the opportunity cost of capital.
When you take a loan for {principal} over {n_periods} compounded by {frequency} at {percentage}; it turns out that there’s a mathematical formula that results in the exact cost of the loan. You can negotiate any of those parameters to achieve that flat-rate equivalent.
But watch out. Because lenders that will agree to flat-rate lending are also most likely to do so on an absolute cost-basis; meaning there is no benefit and perhaps even penalty for early payment.
Compounding isn’t all evil. Debt isn’t inherently evil, either. Like any instrument, it can be tool to improve your life and/or others’, or it can be a weapon to harm yours or others’.
I understand all of that. The way it is now, compound interest only serves to deepen the pit many people find themselves in financially. The system doesn’t work, so just because it can be beneficial to a few people sometimes doesn’t mean it’s worth keeping around.
I don’t think we can just get rid of compound interest. It’s akin to “just get rid of F=ma”.
Compound interest is an economic law of physics. In every day, in every moment, we make choices. Big or small, those choices affect the next opportunity, which affects the next, and the next after next, and so on. A series of really good choices can lead to exponential growth, and vice versa to poor choices. Compounding interest is a mathematical model to represent that. It’s literally the opportunity cost of capital.