Why not ban usury?

[ClaytonB]

I didnt say that the principal amount is reduced by the accrued interest. You have two pots of money one is the principal owed the other is interest owed (accrued interest). Your payments are set up so that every month the balance in the accrued interest is paid in full with enough left over to pay a small amount of principal.

Re-read the sentence you quoted.

Ok I think I see where our disagreement is. Are you under the impression that you would be paying interest on interest in your second scenario? Because you are not. Compounding in this context has nothing to do with paying interest on interest. I only means how often is interest calculated.

No. Compound interest loans operate on precisely the same principle as compound interest in a savings account or other financial instrument. Interest is calculated on principal plus accrued interest. The fact that the calculation is done stepwise during each billing period is irrelevant.

The interest that you pay is based strickly on the outstanding princpal balance in both cases. The difference between your two scenarios is that your percentage rate is this: In your first example the 10% is per 10 years in your second example it is 10% per one year.

Nope. 10% simple interest calculated for one year would still be $110,000 - payments would be $9,166.66 per month. As for “10% per year”… well, that’s again compounding.

The extra $49,240 you pay has nothing to do with paying interest on interest. You pay more because you have agreed to pay 10% interest every year not just once.

Actually, my calculation was based on a monthly compounding period, over 10 years. Anyway, why don’t you give me an example of true compound interest so we can see an example of this elusive beast.

You are jumping from one issue to another. Fees are not interest… they are fees. So this has nothing to do with compound interest. If you are upset that when you borrow money that you are held to the terms of your agreement, I dont know what to tell you.

But what, exactly, is the agreement? That’s the point. Being “held to terms of agreement” is, as Rothbard notes in EoL, an anti-liberal conception of what a contract is. A contract is, at root, a conditional property title. “Terms of the agreement” is a squishy and ill-defined concept… and, ultimately, it leads to unlimited liability. Any agreement, however tiny - even if such an agreement was never actually made! - can balloon into astronomical liability.

As far as “millions of dollars in upaid parking tickets”, I highly doubt that this was a private entitiy… most likely a government entity.

But that’s my point… the private entities imitate the public entity… they are little models of the big tyrant. My point is moral, not political. They’re operating on the same corrupt moral principle as the government and this is what needs to be addressed. We need to question the validity of this kind of behavior, whether by small or large tyrants.

Clayton -